Question
Identify the three main sources of cash flows over the life of a typical project.
Multiple select question.
Net cash flows from salvage value at the end of the project
Cash outflows from investment in plant and equipment at the inception of the project
Net cash flows from sales and expenses over the life of the project.
Test marketing expenses that have been classified as sunk costs
Multiple select question.
Net cash flows from salvage value at the end of the project
Cash outflows from investment in plant and equipment at the inception of the project
Net cash flows from sales and expenses over the life of the project.
Test marketing expenses that have been classified as sunk costs
Answers
GPT-4o mini
The three main sources of cash flows over the life of a typical project are:
1. **Net cash flows from salvage value at the end of the project** - This represents the cash inflow received from the sale of the project's assets at the end of its useful life.
2. **Cash outflows from investment in plant and equipment at the inception of the project** - Although this represents an initial investment (outflow), it is critical to recognize that subsequent inflows from operations exceed these initial outflows over the project's lifespan.
3. **Net cash flows from sales and expenses over the life of the project** - This includes the cash generated from sales after deducting operating expenses, which is essential for determining overall project profitability.
The option regarding test marketing expenses being classified as sunk costs is not typically considered a source of cash flow since sunk costs are expenses that have already been incurred and cannot be recovered.
1. **Net cash flows from salvage value at the end of the project** - This represents the cash inflow received from the sale of the project's assets at the end of its useful life.
2. **Cash outflows from investment in plant and equipment at the inception of the project** - Although this represents an initial investment (outflow), it is critical to recognize that subsequent inflows from operations exceed these initial outflows over the project's lifespan.
3. **Net cash flows from sales and expenses over the life of the project** - This includes the cash generated from sales after deducting operating expenses, which is essential for determining overall project profitability.
The option regarding test marketing expenses being classified as sunk costs is not typically considered a source of cash flow since sunk costs are expenses that have already been incurred and cannot be recovered.