Topic: Sunk Costs

a. If you have invested money into a project, but the remainder of the project has a negative npv, what should you do? should you continue the project? discuss your course of action relating to the topic stated above.

b. You have been given a project proposal. The project is expected to finish in five years (year 5) and has a cost of capital of 10%. If the initial costs of equipment is $400,000, the additional anticipated annual revenues for 5 years is $125,000, additional anticipated annual cash expenses for the first 2 years is $20,000. Assume taxes are not relevant.

Should you accept or reject the project? Please explain and compute/show work computing NPV by hand