[bharti]

hi,

Since I have to submit the below answers urgeently, therefore . Help...

Question:
Infrostore is considering a project to market an existing product to household consumers. As a result, Infrostore's customer support staff must to be expanded to handle the additional workload. Corporate planners have determined that the additional staff will occupy an entire floor of a building owned by infrostore. An accountant has argued that because Infrostore owns the building, the amount of rent charged to the project for housing the additional staff should be zero. Briefly explain if the account is right or wrong and why.

Another accountant argues that because all Infrostore customers will have access to the additional staff, none of the costs should be counted against the project. Briefly explain if this account is right or wrong and why.

Please let me know the feedback at the earliest...

Reagards/bharti

[morgaine300]

We will give you feedback on your attempts to answer your own work. We are not going to answer it for you.

[bharti]

HI Morgaine, I think there is some error as I had posted my answer and based on that I had requested for the feedback since I was trying since last week.

1) I think the accountant is wrong because from financial point of view, a cash flow is defined as the cash that comes in and out of a firm. These are related to opportunity costs
Many projects need resources like land or specialized equipment that could be used for other purposes and may be difficult if not impossible to duplicate. If these resources are used in one particular project, then they can't be used anywhere else. You should count the value of the best alternative use of those resources as an opportunity cost. This cost should be included and therefore cannot be zero.

2) The second question is related to incidental cash flows. As per my understanding the accountant is wrong because we should count the cash associated with any side effects that occur as a result of accepting the project. Therefore this costs should be included.

. Correct if I'm wrong.

Regards/Bharti