n the cash flow information for the Ping Kings project, Ping spent $300,000 for research and development of the golf clubs. Ping's tax rate is 40%. How much of this cost should be included in the initial (t = 0) cash flow for this project

When including initial costs in a project's cash-flow, the relevant costs are those that henceforth will be spent on the project. Sunk costs are not to be included because they have already been incurred and cannot be recovered.

Research and Development costs have already been incurred and so are sunk costs. Hence they are not to be included in the initial cash-flow for the project.

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anthougo anthougo · Answer 2 · 2021-12-02T17:14:30+01:00

The amount of the cost that should be included in the initial (t = 0) cash flow for Ping Kings' Project is D. $300,000.

This is a cash outlay (outflow). It bears a negative value. The initial cash flow cannot be $120,000, $180,000, or $0 because of Ping's tax rate of 40%. Under the FASB, Research and Development costs are capitalized.

Secondly, tax is not applied on capital investment but its net income.

Options for this question include:

A. $120,000

B. $180,000

C. $0

D. $300,000

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