Management is considering two alternatives. Alternative A has projected revenue

Question

Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice. Which of the following statements is correct about relevant costs and relevant revenues.

Question 15 options:

A)

B)

C)

D)

A)

The sunk cost of $75,000 is relevant

B)

The projected revenues are relevant to the decision

C)

The initial investment of $250,000, the projected revenues, and the projected costs are all relevant

D)

The only relevant item are the costs as they differ between alternatives

Explanation / Answer

The only relevant item are the costs as they differ between alternatives Option D is correct

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