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Sir in Capital budgeting do we record fixed costs as a relevant costs??
Also in normal cashflows we remove fixed cost from the costs right?
It is only extra costs that are relevant. So if the total fixed costs for the company do not change then they are not relevant. If the total does change then the extra is relevant.
But in normal cashflow statements we include fixed costs right?( even the ones that does not change with a decision )
What do you mean by ‘normal cash flow statements’? If you are referring to the financial accounting statements, then fixed costs are not show separately – they are subtracted in the calculation of the profit. But this has nothing at all to do with Paper MA.
Sir I was talking about cashflow statements in the mcq questions where they show cash inflows and cash outflows in order to find the netcashflow
I wasn’t talking about the financial statement
Let’s say that the question already included depreciation and fixed overhead (rent that already was there in the business) for the costs
Then we remove only the depreciation in order to calculate cash outflows right?
On the otherhand for capital budgeting ( i.e is int the mtq questions)
I know surely that the depreciation is not relevant but the rent is also not relevant right?
We shouldn’t include it as relevant costs right?I understand in capital budgeting both scenarios are essentially the same thing but for some reason mtqs seem to have a different way of handling the logic compared tot he mcq version of capital budgeting and I wanted to ask why is it like that
We only include cash flows, so if we are given the profit then we add back the depreciation because it is not a cash flow.
Rent is relevant if there is extra rent to pay as a result of the new investment. It is not relevant if the rent is not going to change. We are only interested in the extra cash flows.
Rent is relevant if there is extra rent to pay as a result of the new investment. It is not relevant if the rent is not going to change. We are only interested in the extra cash flows
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