Temple Inc., a household products firm, is considering production of a new detergent. In evaluating whether to go ahead with the project, which item should NOT be explicitly considered when cash flows are estimated?
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The company will produce the detergent in a vacant building that was used to produce another product until last year. The building could be sold, leased to another company, or used in the future to produce other Temple products.
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The company has spent and expensed for tax purposes $4 million on research related to the new detergent. These funds cannot be recovered, but the research is expected to benefit other projects that might be proposed in the future.
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The project will utilize some equipment the company currently owns but is not now using. A used-equipment dealer has offered to buy the equipment.
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The new detergent will cut into sales of the firm’s other detergents.
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