Which of the following statements correctly relates to project appraisal? A) Changes in working capital as a result of implementing a project should be included in the project appraisal. B) The costs of surveys and feasibility studies incurred prior to the decision to implement a project should be included in the project appraisal, as they are a cost of the project. C) The effect of a new project on other parts of a business is irrelevant when trying to decide whether to go ahead with the new project. D) Depreciation is a legitimate cost of a project and should be included in a project appraisal.

Which of the following statements correctly relates to project appraisal? A) Changes in working capital as a result of implementing a project should be included in the project appraisal. B) The costs of surveys and feasibility studies incurred prior to the decision to implement a project should be included in the project appraisal, as they are a cost of the project. C) The effect of a new project on other parts of a business is irrelevant when trying to decide whether to go ahead with the new project. D) Depreciation is a legitimate cost of a project and should be included in a project appraisal.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2Q: Why does a company evaluate both the money allocated to a project and the time allocated to the...

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Which of the following costs would be capitalized? a. Cost of research to determine whether a market for the product exists. b. Salaries of research staff. c. Engineering costs incurred to advance the product to the full production stage. d. Acquisition cost of equipment to be used on current research project only.
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While the NPV is proven to be the correct way of analyzing projects, it seems that its accuracy is enhanced by use of the IRR to determine how sensitive the NPV is to the cost of capital. Given this apparent reality that both tools contribute critical information to final business decisions, shouldn’t both the NPV and IRR be included in every analysis?
Several proposed capital projects which are economically acceptable may have to be ranked due to constraints in financial resources. In ranking these projects, the least pertinent is this statement. A. A ranking procedure on the basis of quantitative criteria may be established by specifying a minimum desired rate of return, which rate is used in calculating the net present value of each project. B. In selecting the required rate of return, one may either calculate the organization’s cost of capital or use a rate generally acceptable in the industry. C. If the internal rate of return method is used in the capital rationing problem, the higher the rate, the better the project. D. If the net present value method is used, the profitability index is calculated to rank the projects. The lower the index, the better the project.
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Explain the conceptual issues involved in the cost of product development and the definition of an asset that can be used to determine whether development expenditure should be treated as an expense or an asset.
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