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Which one of the following would not be expected to affect the decision of whether to...

Which one of the following would not be expected to affect the decision of whether to undertake an investment?

Multiple Choice

  • Income tax rates

  • Estimates of future inflation rates

  • Sales reductions in other products caused by this investment

  • Cost of the feasibility study that was conducted for this project

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Answer #1

Answer to Q#10 First question in the list): Option-(d): Cost of the feasibility study that was conducted for this project. Reason: Costs and Expenses that would be expected to affect the decision of whether to undertake an investment are known as relevent costs and expenses. These costs and expenses must be incurred specifically for the investment option being evaluated, whether directly or indirectly. In other words, if the investment is not taken up, these costs and expenses can be avoided by the management. On the other hand, there are certain costs called as sunk costs which would have been incurred already and cannot be recovered by choosing the investment option. Therefore, sunk costs are considered as irrelevant osts in choosing an investment option Cost of the feasibility study that was conducted for this project is a kind of sunk cost which would have been incurred before starting up the investment option itself and so it would not be expected to affect the decision of whether to undertake an investment.

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