A rental car company bought a new fleet of midsize cars and sold off its old midsize cars because they had too manymiles on them. Which type of project would this be considered?An expansion projectA replacement projectWhat are sunk costs?Acme Manufacturing owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or usehe warehouse in a new project. Should Acme Manufacturing include the value of the warehouse as part of the initialnvestment in the new project or treat the value of the warehouse as a sunk cost?Yes, include the value of the warehouse as part of the initial investment in the new projectNo, treat the value of the warehouse as a sunk costThe role of externalitiesA large soft-drink company currently produces regular cola and diet cola. It is considering introducing a new softdrink that tastes like regular cola but has zero calories like the diet cola. The new zero-calorie drink that tastes likeegular cola is most likely to produceexternality.

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A rental car company bought a new fleet of midsize cars and sold off its old midsize cars because they had too many niles on them. Which type of project would this be considered? O An expansion project O A replacement project

A rental car company bought a new fleet of midsize cars and sold off its old midsize cars because they had too many niles on them. Which type of project would this be considered? O An expansion project O A replacement project

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 3P

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Suppose the company plans to use a building that it owns to house the project. The building could be sold for $5 million after taxes and real estate commissions. How would that fact affect your answer? The potential sale of the building represents an opportunity cost of conducting the project in that building. Therefore, the possible after-tax sale price must be charged against the project as a cost. The potential sale of the building represents an opportunity cost of conducting the project in that building. Therefore, the possible before-tax sale price must be charged against the project as a cost. The potential sale of the building represents an externality and therefore should not be charged against the project. The potential sale of the building represents a real option and therefore should be charged against the project. The potential sale of the building represents a real option and therefore should not be charged against the project. -Select-IIIIIIIVV