Question

Which of the following factors should be considered when evaluating the effect of the current project's acceptance on the cash flows of Chrome Manufacturing's other projects? (They can be either positive or negative, and because they depend on whether the current project is accepted, they should be included in the analysis.)

A) Opportunity costs
B) Externalities
C) Sunk costs
D) None of the above

Answer 1

When evaluating the effect of a project's acceptance on cash flows of other projects, factors such as opportunity costs and externalities must be considered.

Step-by-step explanation:

When evaluating the effect of the current project's acceptance on the cash flows of Chrome Manufacturing's other projects, there are several factors to consider:

1. Opportunity costs: These are the potential benefits that could be gained from alternative projects or investments that are forgone when the current project is accepted. For example, if Chrome Manufacturing chooses to invest in the current project, it may have to forgo investing in another project with higher potential returns.
2. Externalities: These are the unintended consequences or impacts that the current project may have on Chrome Manufacturing's other projects. These externalities can be positive or negative and can affect the cash flows of the other projects. For example, the current project may create synergies that enhance the profitability of the other projects, or it may require additional resources that detract from the profitability of the other projects.
3. None of the above: It is important to consider that there may be other factors specific to Chrome Manufacturing's business context that should be taken into account when evaluating the effect of the current project on the cash flows of the other projects.

Considering these factors helps ensure a comprehensive analysis of the impact of project acceptance on cash flows.