Question
You discover that the sewage-treatment chemical your scientists developed three years ago makes a great age-defying facial lotion if diluted properly and with the addition
You discover that the sewage-treatment chemical your scientists developed three years ago makes a great age-defying facial lotion if diluted properly and with the addition of some plant extracts. How should you treat the original $400,000 of R&D expenditures that went into developing the sewage- treatment chemical in your present capital budgeting decision of whether or not to begin production of the face lotion? a. Treat it as a cash outflow three years ago for the current project, that is, find the future value today of the $400,000 spent three years ago. b. The full $400,000 should be treated as initial investment today. c. As a cash inflow since the formula has obviously increased in value over the years. d. As an opportunity cost if the formula cannot presently be sold to another manufacturer. e. As a sunk cost since that R&D expenditure has no bearing on today's decision
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