Alexander Industries owns a warehouse that it Is not currently using. It could s
ID: 2674823 • Letter: A
Question
Alexander Industries owns a warehouse that it Is not currently using. It could sell the warehouse for (300, 000 or use the warehouse in a new project. Should Alexander Industries include the value of the warehouse as part of the initial investment in the new project? Yes because the Arm could sell the warehouse if it didn't use It for the new project. No, because the company will still be able to sell the warehouse once the project is complete. No. because the cost of the warehouse is a sunk cost. A paper manufacturer has burl a plant that meets all government-mandated environmental regulations, but the plant still produces an unpleasant odor when it Is being operated Many residents In the area the paper because of these unpleasant odors. This is an example ofExplanation / Answer
Q.1
Alexander industries owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or use the warehouse in a new project. Should Newcastle Coal Co. include the value of the warehouse as part of the initial investment in the new project?
correct answer : Yes, because the firm could sell the warehouse if it did not use it for the new project.
it is not a case of sunk cost otherwise we whould have ignored it. Here, we can realise a value from selling it. so yes it is a relevant variable for capital budgeting
Q.2
A paper manufacturer has built a plant that meets all government-mandated environmental regulations, but still produces an unpleasant odor when it is being operated. Many residents in the area dislike the paper mill of these unpleasant odors. This is an example of ________ externality.
correct answer : an environmental externality
As the company produces the unpleasant odour, it affects the society adversely. so it is taken as environmental externality.
The firm does not have any problem within itself as it satisifes all government regulations.
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