CFA Practice Question

There are 233 practice questions for this study session.

CFA Practice Question

The following cash flows should be treated as incremental flows when deciding whether to go ahead with an electric car except ______.
A. the consequent deduction in sales of the company's existing gasoline models
B. the value of tools that can be transferred from the company's existing plants
C. interest payment on debt

User Contributed Comments 11

User Comment
kalps Debt finance is not treated as an incremental flow as it is accounted for in the Cost of capital I think.
Angelique The value of the tools from the other plants is a sunk cost. Why is that included in incremental cash flows?
muloma The value of tools is an opportunity cost since they could have been used in existing operations to generate cash flow
SnowWhite The value of the tools could have also been sold, that's why you include it. (Another opportunity cost)
americade I believe the answer should be A, it is an incremental cost - cannibalization. Interest payments is aleady reflected in cost of capital.
danlan Kalps is right
Shelton interest payment on debt = debt financing ~ Cost of capital != incremental flows
steved333 Yeah, interest is figured in the WACC
sheenalim americade, your statement is correct, however the question says EXCEPT, so the only statement wrong here is interest payments.
StanleyMo never include interest payment in the cash flow calculation!
serboc interest is on corp debt is tax deductible (1-t)
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