Purchase Solution

Land owned by a firm is irrelevant to a capital budgeting decision as it is a sunk cost

Not what you're looking for?

Ask Custom Question

In general, the value of land currently owned by a firm is irrelevant to a capital budgeting decision because the cost of the property is a sunk cost?

a. True.
b. False.

Purchase this Solution
Solution Summary

The solution provides a background in the capital budgeting process as a method of explaining the response to the statement.

Solution Preview

Capital Budgeting is the process by which the firm decides which long-term investments to make. Capital Budgeting projects, i.e., potential long-term investments, are ...

Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Motivation

This tests some key elements of major motivation theories.

View More Free Quizzes
Related BrainMass Solutions

  • Evaluating Capital Budgeting Decisions

    The manager preparing the analysis argues that the historical cost of the land is a sunk cost - a cost that has already been incurred and thus cannot be recovered - and since the firm intends to keep the land whether or not the expansion project is accepted

  • SAC: Evaluate purchase of new equipment

    The decision to accept or reject a Capital Budgeting project depends on an analysis of the cash flows generated by the project and its cost.

  • Capital Budgeting (h)

    LAND this is a big realizable asset which should be revalued regularly especially before a project where the land is to be used. The mistake made in evaluation of land is that it is often shown at the purchase cost, which occurred long ago.

  • Payback Period, Sensitivity Analysis

    195691 Payback Period, Sensitivity Analysis Why is the payback period not a preferred method in the capital budgeting decision-making process? Which decision-making criteria is the best to use for capital budgeting decisions? Why?

  • NPV

    The rent referred to in statement d is a sunk cost, and as such it should be ignored. a.

  • Capital Investment Decisions: Sunk costs and timing options

    The rule for including a cost in capital budgeting analysis is that whether there will be any change in that cost depending upon my final decision to invest or not to invest.

  • Sunk costs

    Because of its unique configuration and location, it is currently of no use to either FSI or any other firm. Hence Cost of $130000 is a sunk cost as it has been incurred in the past and currently it has no use.

  • Relevant cash flow

    sunk costs already incurred Sunk cost is irrelevant as it has already been incurred in the past and it won't affect the project. References: http://www.investopedia.com/terms/r/relevantcost.asp.

  • Explain sunk cost,externality,cannibalization,depreciation

    If one of the assets to be used by a potential project is already owned by the firm, and if that asset could be leased to another firm if the new project were not undertaken, then the net rent that could be obtained should be charged as a cost to the

View More Related Solutions