Money expected to be borrowed to finance the investment

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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

Reference no: EM132049537

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