Pickles Corp

Multiple Choice

Pickles Corp. is a company which sells bottled iced tea. The company is thinking about expanding its operations into the bottled lemonade business. Which of the following factors should the company incorporate into its capital budgeting decision as it decides whether or not to enter the lemonade business?

A) If the company enters the lemonade business, its iced tea sales are expected to fall 5 percent as some consumers switch from iced tea to lemonade.
B) Two years ago the company spent $3 million to renovate a building for a proposed project which was never undertaken. If the project is adopted, the plan is to have the lemonade produced in this building.
C) If the company doesn't produce lemonade, it can lease the building to another company and receive after-tax cash flows of $500,000 a year.
D) All of the statements above are correct.
E) Answers a and c are correct.