Asked by Lorna Richards on Jul 17, 2024
Verified
Which one of the following statements is correct?
A) Project analysis should only include the cash flows which affect the statement of comprehensive income.
B) A project can create a positive cash flow from operations without affecting the sales level of a firm.
C) For the majority of projects that increase sales, there will be a cash outflow related to net working capital that occurs at the end of the project.
D) Interest expense should always be included as a cash outflow when analyzing a project.
E) The opportunity cost of a company-owned building that is going to be used in a new project should be included as a cash inflow to the project.
Project Analysis
The process of examining the feasibility and potential return on investment of a project before committing resources.
Opportunity Cost
Opportunity cost represents the benefits an individual, investor, or business misses out on when choosing one alternative over another.
Cash Flow Operations
The net amount of cash and cash-equivalents being transferred into and out of a business, specifically from its operational activities.
- Distinguish between relevant and irrelevant costs in project decision-making, understanding the impact of sunk and opportunity costs.
Verified Answer
TC
Tammy CarmonaJul 23, 2024
Final Answer :
B
Explanation :
B) A project can create a positive cash flow from operations without affecting the sales level of a firm. This is correct because projects can improve efficiency, reduce costs, or enhance productivity, leading to positive cash flows even without an increase in sales.
Learning Objectives
- Distinguish between relevant and irrelevant costs in project decision-making, understanding the impact of sunk and opportunity costs.