35、A company that sells ice cream is evaluating an expansion of its production facilities to allow the company to also produce frozen yogurt. The expansion project is based on a marketing study that concluded producing frozen yogurt would increase the company's ice cream sales because of an increase in brand awareness. Should an analyst include the cash flows associated with the expected increase in ice cream sales in the calculation of the project's net present value (NPV)?

A. No, because the projected increase in ice cream sales is an externality.

B. No, because the projected increase in ice cream sales is an opportunity cost.

C. Yes, because the project's NPV will be overstated if the cash flows associated with the projected increase in ice cream sales are not included.

D. Yes, because the project's NPV will be understated if the cash flows associated with the projected increase in ice cream sales are not included.

[此贴子已经被作者于2008-11-7 16:00:10编辑过]

Correct answer = D

"Capital Budgeting," John D. Stowe and Jacques R. Gagné
2008 Modular Level I, Vol. 4, pp. 11-12
Study Session 11-44-b
discuss the basic principles of capital budgeting, including the choice of the proper cash flows and determining the proper discount rate
The increase in ice cream sales (externality) should be treated as an incremental cash flow and should be included in the analysis of the project's net present value. 

[此贴子已经被作者于2008-5-19 16:49:59编辑过]

thanks