Question
In: Finance
Macys started a project that requires more investment. They have to decide whether to continue with...
Macys started a project that requires more investment. They have to decide whether to continue with the project or not. What are their options?
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Expert Solution
If they have to decide whether to continue with the project or not then, they have following options-
A. They can raise funds from the market in order to invest into the business so that they can continue the project.
B. If the cost of investment is lower than the overall value generated from now (because past expenditure will not be considered as there are sunk cost for new investment, so we will analyse the overall cost of investment with return of investment), then They will not be accepting the investment and discontinuing the project.
C. If the overall cost of investment is lower than the incremental benefit generated, then They will be proceeding with the project and They will continue this project because this will be leading to additional value generation.
Hence, They can adopt incremental analysis in order to decide whether to raise money from the market or discontinue the project.
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