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Ford Motor Company is considering launching a new line of Plug-in Electric SUVs. The CFO is evaluating the incremental...

Ford Motor Company is considering launching a new line of Plug-in Electric SUVs. The CFO is evaluating the incremental cash flows that are expected from the new project. Which one of the following cash flows should NOT be considered?
A. The new line of Plug-in Electric SUVs needs to use a technology patent that Ford would otherwise sell to other car manufacturers for $10 million.
B. Once the new plug-in Electric SUVs is launched, the sales of existing SUVs are expected to decrease by 15%.
C. Ford has spent $100 billion on develeping a technology patent needed for Plug-in Electric SUVs.
D. In order to launch the new line, Ford needs to purchase new equipments for $20 million.
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Answer #1

The answer is

C. Ford has spent $100 billion on developing a technology patent needed for Plug-in Electric SUVs.

This cash flow will not be considered as it is a sunk cost already incurred

Sunk costs are not relevant for the analysis

Rest all are incremental or opportunity costs, relevant for the analysis

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