You have been made treasurer for a day at AIMCO, Inc. AIMCO develops technology for video conferencing. A manager of the satellite division has asked you to authorize a capital expenditure in the amount of $10,000. The manager states that this expenditure is necessary to continue a long-running project designed to use satellites to allow video conferencing anywhere on the planet. The manager admits that the satellite concept has been surpassed by recent technological advances in telephony, but he feels that AIMCO should continue the project. His reasoning is based on the fact that $2.5 million has already been spent over the past 15 years on this project. Although the project has little chance to be viable, the manager believes it would be a shame to waste the money and time already spent. Use marginal cost–benefit analysis to make your decision regarding whether you should authorize the $10,000 expenditure to continue the project.
Choose one of the following 4 answers below
A) You should authorize the $10,000 expenditure to continue the project becauase the marginal cost-benefit analysis treats the $2.5 million as part of the project's initital capital outlay that can be recovered only if the project is implemented.
B) You should authorized the $10,000 expenditure to continue the project if the project will generate a positive net present value. The marginal cost-benefit analysis treats the $2.5 million as a cost that is irrevelant to the current decision making.
C) You should not authorize the $10,000 expenditure to continue the project even if the project will generate a positive net present value. The marginal cost-benefit analysis treats the $2.5 million as a cost that is exteremely unlikely to be recovered and the $10,000 expenditure will also become a cost unlikely to be recovered.
D) You should not authorize the $10,000 expenditure to continue the project becauase it is surpassed by new telephony technology. Though the marginal cost-benefit analysis treats the $2.5 million as a cost that is irrevelant to the current decision making, continuing the project would be foolish even if the $10,000 expenditure generates a positive net presnet value.