Question

Review the three scenarios below. Look for which, if any, of these scenarios presents an example of post-investment holdup.

1. Your firm conducted a search for a new chief financial officer and hired a highly qualified candidate with a yearly salary of $250,000. After six months, the person left to join another firm.
2. Your firm has an exclusive contract to assemble automobile seats for a number of luxury models. Almost 100% of the materials are imported and, of those, over 50% include parts manufactured in China. All of the prices on the parts from China increased by 25% when the U.S. imposed tariffs on China. Your company has informed all of its customers that increased cost must be passed on for your firm to continue supplying the seats. All of your customers reluctantly agreed to pay the additional cost.
3. Your company took note of your progress toward your MBA, and when the director for customer services left the company, you were asked to take over as interim director. You were encouraged to apply for the full-time position once you got your MBA. You served for 13 months, at which time your company was acquired by another company and your position was abolished.

In your discussion post, address the following:

• Which of the above, if any, are an example of post-investment holdup?
• Define the following and explain each within the context of a chosen scenario:
  • What is the sunk, or stranded, cost?
  • What is the contract?
  • Was the contract breached?
  • What are the damages?

Answer 1

Post investment hold up is a situation where a contract is left incomplete.

From the above examples, case C is an example of post investment hold up.

Sunk cost is the cost that has already been paid and once a person pays it, it cannot be recovered. In the given case, the cost of pursuing MBA is a sunk cost.

Contract in the given case was to give the position of director for customer services to the person being talked about in the example after he is done with his MBA.

Yes, the contract was breached because the position of the person was abolished even after he completed his MBA because the old company who had made the promise was replaced by a new one. So the new company didn't give the position to the person as promised and the contract got breached.

The damage from the breaching of this contract was that a high position was taken away from a deserving employee who could take the company to new heights. It was a damage for the company also as that person who was removed from the posohad all the caliber to work on that position for the growth of the firm.