Production Facility At $ 2 Million Essay

898 Words Jul 22nd, 2016 4 Pages
The best course of action for the firm would be to sell the production facility at $2 million, because in order to to continue doing business in the next two years, the costs to operate will be greater than the potential profits expected by the company. By the end of four years, company will have already spent $16.5M, vs. the total anticipated return of $14M. With this in mind, the company will have lost $2.5M by the end of four years. In addition, the plant will have no resale value by the end of four years, and will not be able to recoup the additional losses incurred.

On the other hand, if the company drops the product, the company will be able earn a profit of $8M ($6M 2yr profit + $2M production facility) and mitigate the risk by -500k, losing a net of $2M than $2.5M if it chooses to continue the product.

What about you? Describe a situation where you have confronted the sunk cost fallacy -- either in your personal life or in the business setting.

People and organizations often consider past investment decisions when choosing how to move forward. Individuals, in particular, tend to continue engaging in activities in which they have made prior investments despite delivering consistently poor results in the hopes of achieving a successful turnaround (Roberto, M., 2009).

An example of this is with my previous organization, we are encouraged to offer customized products for high profile customers with an expectation to reap sales profits. An example of this would be…

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