Question

8. For the case of an electric car project, the following costs should be treated as incremental costs when deciding whether to go ahead with the project EXCEPT: A. The consequent reduction in sales of the company's existing gasoline models. B. Interest payments on debt incurred to finance the project. C. The value of tools that will be transferred to the project from the company's existing plants instead of being sold. D. The expenditure on new plants and equipment.

Answer 1

Answer: B. Interest payments on debt incurred to finance the project.

Step-by-step explanation:

When it comes to deciding whether a project will go ahead after the initial production stage, the costs that will be incremental should only be those that will be incurred if the project goes ahead.

Any cost that has already been incurred should not be considered as these are sunk costs and are treated as non-recoverable. Interest payments on debt incurred to finance this project has already been incurred and so is a sunk cost that should no longer be considered.