MGFB10H3 : Capital Budgeting
Document Summary
Rick lee and jane smith are considering building a new bottling plant to meet expected future demand for their new line of tropical coolers. They are considering putting it on a plot of land they have owned for three years. They are analyzing the idea and comparing it to some others. Rick says, jane when we do this analysis, we should put in an amount for the cost of the land equal to what we paid for it. After all it did cost us a pretty penny. jane retorts, no, i do not care how much it cost we have already paid for it. It is what they call a sunk cost. Jocelyn chen & bosco lau toys has developed a new children"s toy. Expenses are expected to be 40% of the revenues, and working capital required in each year is expected to be 20% of the revenues of the following year.
