Your boss wishes to continue with a project because the firm has already invested 15 million

dollars in research and development on the project with limited success. The present value

calculations your group has done on the project suggest that the project, if implemented, will

only generate revenues of 11.5 million dollars. The up-front cost of implementing the project,

when research and development discovers the appropriate solution, is 12 million dollars. Should

you continue funding the research and development on the project? Are there any potential

flaws in your boss logic? If flaws exist, identify and explain the flaws. (15 points)

Several flaws in logic exist:

The Net Present Value of the project is negative. The project ought not ever been

attempted.

The project ought not to be continued. The justification of the project is using sunk costs to

continue. Sunk costs are non-recoverable and ought not to be used as any justification of

doing the project.