The chief financial officer (CFO) of New Age Fashion Ltd. has just received a request from a project manager to authorize an expenditure in the amount of 45,000. The manager states that this expenditure is necessary for the last stage development of a space navigation system, which is based on a programming language called Xtor. As a space engineer and financial manager, you know that Xtor is almost obsolete and is being replaced by alternatives that provide better cross-platform compatibility. However, the project manager insists that they should continue with the last tranche of payment because over 1.5 million has already been spent on developing this navigation system. It would be a shame to waste all the time and resources that have been invested. Advise the CFO regarding whether she should authorize the 45,000 proposed expenditure. Use marginal cost-benefit analysis to explain your reasoning.

Which of the following statements correctly describes your decision? (Select the best answer below.)

A.

The CFO should not authorize the 45,000 expenditure to continue the project because it is surpassed by the new technology. Though the marginal cost-benefit analysis treats the 1.5 million as a cost that is irrelevant to the current decision making, continuing the project would be inadvisable even if the 45,000 expenditure generates a positive net present value.

B.

The CFO should authorize the 45,000 expenditure to continue the project if the project will generate a positive net present value. The marginal cost-benefit analysis treats the 1.5 million as a cost that is irrelevant to the current decision making.

C.

The CFO should not authorize the 45,000 expenditure to continue the project even if the project will generate a positive net present value. The marginal cost-benefit analysis treats the 1.5 million as a cost that is extremely unlikely to be recovered and the 45,000 expenditure will also become a cost unlikely to be recovered.

D.

The CFO should authorize the 45,000 expenditure to continue the project because the marginal cost-benefit analysis treats the 1.5 million as part of the project's initial capital outlay that can be recovered only if the project is implemented.