Talco Ltd undertakes research work. It also manufactures engineering products. It is currently engaged on a research project which, when completed, will be sold for

£250 000. So far, costs totalling £200 000 have been incurred by Talco on the project.

This is more than was budgeted to bring the project to the present stage and, as a result, the question arises as to whether it would be better to complete the project or abandon it immediately.

It is estimated that the following will be necessary to complete the project:

1 Material, already bought at a cost of £40 000 (not included in the £200 000 mentioned above) and currently held in stock. This is toxic material for which Talco has no other use. It has no market value, but it will, if the project is abandoned, have to be disposed of at a cost of £8000.

2 Labour, which will cost a further £25 000. This labour is skilled and in demand elsewhere in the business. Were the project to be abandoned, the labour will be used to make and sell 2000 units of a standard product. This product will be sold for

£25 each with a material cost of £12 each.

3 Project management, which will cost a further £10 000. If the project is abandoned the manager concerned will be made redundant at a cost of £8000. Under the terms of the manager’s contract, no redundancy pay is due if the project goes on to completion.

Show figures and explanations that indicate whether, assuming a wealth maximisation objective, the project should be continued or abandoned.