Kleen Corp owns equipment purchased a few years ago. A used equipment dealer has offered $80,000 to buy the equipment from the company. A start-up division of Kleen wants the equipment to use in its new business. Kleen wants to charge the start-up division for the equipment. The start-up division argues that the equipment is a sunk cost and should not be charged for it--it was bought and paid for years ago. Who is right--is this a sunk cost or something else? Select the best answer.
a. Opportunity cost--charge the start up
b. Fixed cost--don't charge the start up
c. Sunk cost--don't charge the start-up division
d. Incremental cost-charge the start-division
When estimating cash flows, include interest expense on money expected to be borrowed to finance the investment or not?
Yes--it is an incremental expense
Yes--it is not an incremental expense
No--it is an operating cash flow
No--it is a financing cash flow