The opportunity to abandon a project inexpensively is likely to have more value when the product:
A)incurs high fixed costs of production.
B)incurs high variable costs of production.
C)is generating a positive NPV.
D)has a steady degree of operating leverage.

Question

Quizplus · Accepted Answer

The opportunity to abandon a project inexpensively is more valuable when the product incurs high fixed costs of production because fixed costs are sunk costs that cannot be recovered once spent. If a project is not going as planned, being able to exit without incurring further fixed costs can save a company significant money.

The Opportunity to Abandon a Project Inexpensively Is Likely to Have