You discover the engine-oil additive your scientists developed three years ago makes a great men's after-shave once diluted properly using certain chemicals. How should you treat the original
$125,000 of R&D expenditures that went into developing the engine-oil additive for your present
Decision regarding whether or not to begin production of the after-shave?
A) Treat it as a cash outflow three years ago for the current project; that is, find the future value today of the $125,000 spent three years ago.
B) The full $125,000 should be treated as an 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 the R&D expenditure has no bearing on today's decision.
Correct Answer:
Verified
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