decision relevance

Question 1

Are sunk costs included in investment appraisal decision relevance questions?

Answer 1

No; Sunk costs have already been incurred and cannot be recovered

Question 2

Are future cash inflows included in investment appraisal decision relevance questions?

Answer 2

Yes; They directly affect the financial outcome of the investment

Question 3

Are depreciation charges included in investment appraisal decision relevance questions?

Answer 3

No; Depreciation is a non-cash expense and does not affect cash flow

Question 4

Are opportunity costs included in investment appraisal decision relevance questions?

Answer 4

Yes; They represent benefits lost by choosing one option over another

Question 5

Are committed costs included in investment appraisal decision relevance questions?

Answer 5

No; They must be paid regardless of the decision and cannot be avoided

Question 6

What are committed costs in investment appraisal?

Answer 6

Costs the business is obligated to pay regardless of the decision; They are not relevant because they can’t be avoided

Question 7

Are non-cash items included in investment appraisal decision relevance questions?

Answer 7

No; Only actual cash flows are considered for investment decisions

Question 8

Are residual values included in investment appraisal decision relevance questions?

Answer 8

Yes; They represent expected cash inflow from selling an asset at the end of the project

Question 9

Are fixed costs included in investment appraisal decision relevance questions if depreciation is removed?

Answer 9

Only if they are cash-based and change due to the decision; Unchanging fixed costs and depreciation are excluded

Question 10

Are variable costs included in investment appraisal decision relevance questions?

Answer 10

Yes; If they change as a result of the investment, they are relevant