Question

1.The Footcare Co. is considering adding a new line of winter footwear to its product lineup. Which of the following are relevant cash flows for this project?

I.Decreased revenue from products currently being offered if this new footwear is added to the lineup

II.Revenue from the new line of footwear

III.Money spent to date looking for a new product line to add to the store's offerings

IV.Cost of new counters to display the new line of footwear

A.I and IV only

B.II and IV only

C.II and III only

D.I, II, and IV only

E.II, III, and IV only

Answer 1

1.The Footcare Co. is considering adding a new line of winter footwear to its product lineup. Which of the following are relevant cash flows for this project?

Answers in Bold below;

I.Decreased revenue from products currently being offered if this new footwear is added to the lineup (This is the opportunity loss which is coming due to addition of new line of winter footwear and hence this is relevant to consider as part of cash flows)

II.Revenue from the new line of footwear (This is the incremental revenue Footcare Co shall be getting by addition of new line of footwear and hence this is relevant to consider as part of cash flows)

III.Money spent to date looking for a new product line to add to the store's offerings (This is the general expense spent by Footcare Co to look for new product line and this cost is not exclusively for development or product research or market research for new line of winter footwear. Hence, since this cost is not exclusive to this new footwear, this is not relevant to consider as part of cash flows)

IV.Cost of new counters to display the new line of footwear (These counters seems to be requirement to ensure effective sale of newline of footwear and thus revenue generation. Hence, this cost for new counters is relevant to consider as part of cash flows)

Answer : D. I, II, and IV only