Question

Which of the following factors should Chrome Manufacturing consider in its capital budgeting analysis? Check all that apply.

A) If the current project is accepted, sales in another of Chrome's divisions for a competing product will decline.
B) Chrome expects its accounts receivable to increase by $70,000 as a result of the project.
C) Chrome's preferred stock pays $250,000 in dividends each year.
D) Chrome's annual interest expense is $3 million, which is partly due to debt raised for this project.

Answer 1

Chrome Manufacturing should consider factors such as the potential impact on sales in another division, the increase in accounts receivable, and the annual interest expense when analyzing capital budgeting decisions.

Step-by-step explanation:

Chrome Manufacturing should consider the following factors in its capital budgeting analysis:

• If the current project is accepted, sales in another of Chrome's divisions for a competing product will decline. This factor is important because it can impact the overall profitability of the company if accepting the project leads to a decrease in sales for another division.
• Chrome expects its accounts receivable to increase by $70,000 as a result of the project. This factor is relevant because it represents an expected increase in the company's assets and can affect cash flow and financing decisions.
• Chrome's preferred stock pays $250,000 in dividends each year. This factor is not directly related to the capital budgeting analysis as it pertains to the company's regular dividend payments to preferred stockholders and not the specific project being evaluated.
• Chrome's annual interest expense is $3 million, which is partly due to debt raised for this project. This factor is significant as it represents one of the costs associated with the project and can impact the project's profitability and financial feasibility.