- 1 Marks
Question
The concept of cash flow is of vital importance to capital investment appraisal. Which of the following costs is relevant to investment decisions?
A. Future costs
B. Notional costs
C. Committed cost
D. Absorbed cost
E. Apportionment cost
Answer
A. Future costs
Explanation:
The correct answer is A because future costs are directly related to the future inflows and outflows of cash that will result from the investment. They are relevant to decision-making because they affect the profitability of the project. Costs like notional, absorbed, and apportionment are either irrelevant for decision-making or are historical costs that do not impact future cash flows.
- Tags: Capital Budgeting, Investment Appraisal, Relevant Costs
- Level: Level 1
- Topic: Investment Decisions
- Series: NOV 2021
- Uploader: Theophilus