Question

Dalrymple Inc. is considering production of a new product. In evaluating whether to go ahead with the project, which of the following items should NOT be explicitly considered when cash flows are estimated? a. The new product will cut into sales of some of the firm's other products. b. If the project is accepted, the company must invest an additional $2 million in net operating working capital. However, all of these funds will be recovered at the end of the project's life. c. The project will utilize some equipment the company currently owns but is not now using. A used equipment dealer has offered to buy the equipment. d. The company will produce the new product in a vacant building that was used to produce another product until last year. The building could be sold, leased to another company, or used in the future to produce another of the firm's products. e. The company has spent and expensed for tax purposes $3 million on research related to the new product. These funds cannot be recovered, but the research may benefit other projects that might be proposed in the future.

Answer 1

Answer: E. The company has spent and expensed for tax purposes $3 million on research related to the new product. These funds cannot be recovered, but the research may benefit other projects that might be proposed in the future.

Step-by-step explanation:

Since Dalrymple Inc. is considering production of a new product, it should be noted that when evaluating whether to go ahead with the project, when cash flows are estimated, the amount the company spent and expensed for tax purposes $3 million on research related to the new product should not be explicitly considered.

We re already given further information that these funds cannot be recovered, but the research may benefit other projects that might be proposed in the future.

Therefore, the correct option is E.