You spent 500 last week fixing the transmission in

16. You spent $500 last week fixing the transmission in your car. Now, the brakes are acting
up and you are trying to decide whether to fix them or trade the car in for a newer model. In
analyzing the brake situation, the $500 you spent fixing the transmission is a(n) _____ cost.
Difficulty level: Easy
Topic: SUNK COST
Type: CONCEPTS
17. Erosion can be explained as the:
Difficulty level: Easy
Topic: EROSION
Type: CONCEPTS
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Chapter 06 - Making Capital Investment Decisions
18. Which of the following are examples of erosion?
I. the loss of sales due to increased competition in the product market
II. the loss of sales because your chief competitor just opened a store across the street from
your store
III. the loss of sales due to a new product which you recently introduced
IV. the loss of sales due to a new product recently introduced by your competitor
Difficulty level: Medium
Topic: EROSION
Type: CONCEPTS
19. Which of the following should be included in the analysis of a project?
I. sunk costs
II. opportunity costs
III. erosion costs
IV. incremental costs
Difficulty level: Medium
Topic: TYPES OF COSTS
Type: CONCEPTS
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Chapter 06 - Making Capital Investment Decisions
20. All of the following are anticipated effects of a proposed project. Which of these should
be included in the initial project cash flow related to net working capital?
I. an inventory decrease of $5,000
II. an increase in accounts receivable of $1,500
III. an increase in fixed assets of $7,600
IV. a decrease in accounts payable of $2,100
Difficulty level: Medium
Topic: NET WORKING CAPITAL
Type: CONCEPTS
21. Changes in the net working capital:
Difficulty level: Medium
Topic: NET WORKING CAPITAL
Type: CONCEPTS