10. A software company has just developed a new software suite. Which of the following cash...
10. A software company has just developed a new software suite. Which of the following cash flows should be treated as incremental when deciding whether to go ahead and produce the software? Why?
A. The research and development costs that were incurred developing the software.
B. The value of land that you would otherwise sell.
C. The consequent increase in the sales of the company’s existing software products due to bundling of its
products.
D. The salvage value of the equipment at the end of its planned life.
E. Tax shield associated with the software amortization charge.
F. Marketing expenses for the product.
G. A proportion of expenses for the head office assuming these expenses are independent of whether
software is produced.
(a)A, B, C, D, E
(b)B, D, E, F, G
(c)B, C, D, E, F
(d)A, C, D, E, F
Homework Answers
A software company has just developed a new software suite. Which of the following cash flows should be treated as incremental when deciding whether to go ahead and produce the software? Why?
Answer:
(d)A, C, D, E, F
The research and development costs that were incurred developing the software.
The consequent increase in the sales of the company’s existing software products due to bundling of its products.
The salvage value of the equipment at the end of its planned life.
Tax shield associated with the software amortization charge.
Marketing expenses for the product.
These factors are required for cash flow. Whereas, B and G seems
unrelated
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10. A software company has just developed a new software suite.
Which of the following cash...
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