Subway is analyzing whether they should invest in a new type of sandwich. They h

Question

Subway is analyzing whether they should invest in a new type of sandwich. They have already spent $10,000 on new cookies this year. The new sandwich is estimated to generate $2/sandwich of revenue and cost $1.50 in variable expense. If the investment is taken on Subway’s working capital will increase by $5,000 and it is estimated the revenue from other sandwiches will decrease by $1,500 a year. Instead of investing in the new sandwich Subway could buy a new oven for $80. In figuring Subway’s incremental cash flows, which figure should not be used?

Question 4 options:

A. $80

B. $10,000

C. $1,500

D. $5,000

Explanation / Answer

B) $ 10,000

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