COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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We begin the capital budgeting process by determining the incremental earnings of a project.
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The marginal corporate tax rate is the tax rate the firm will pay on an incremental dollar of pre-tax income.
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Investments in plant, property, and equipment are directly listed as expense when calculating earnings.
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The opportunity cost of using a resource is the value it could have provided in its best alternative use.
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Detailed explanation-1: -The answer is C) Investments in plant, property, and equipment are directly listed as expense when calculating earnings.
Detailed explanation-2: -Investments in plant, property, and equipment are not directly listed as expenses when calculating earnings. Instead, the firm deducts a fraction of the cost of these items each year as depreciation.
Detailed explanation-3: -Answer: The correct answer is option B. Explanation: Capital budgeting considers the opportunity cost.
Detailed explanation-4: -Incremental earnings should include all incremental revenues and costs associated with the project, including project externalities and opportunity costs, but excluding sunk costs and interest expenses.
Detailed explanation-5: -It does not include sunk costs.