Question

Question No 1:
If two projects are _______________, the fact that they have unequal lives will not affect the analysis.
a)Mutually exclusive
b)Dependent
c)Independent
d)Correlated

Question No 2:
Mr. A, as a financial consultant, has prepared a feasibility report of a project for XYZ Company that the company is planning to undertake. He has suggested that the project is feasible. The consultancy fee paid to Mr. A will be considered as:
a)Sunk cost
b)Opportunity cost
c)Both sunk cost and opportunity cost
d)Neither sunk cost nor opportunity cost

Answer 1

1. b
As a general rules, the unequal life issue never arises for independent projects, but it can be an issue when we compare mutually excluxive projects with significant different lives.
2. a
cost that has already been incurred and cannot be recouped and therefore should not be considered in
an investment decision
•e.g. a consultant’s fee for evaluating the option of launching a new product