Practice Quiz

CAPM Project Management Exam Prep

Category - Cost Management

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Titanic Inc. is reviewing their existing projects. $10 million has already been spent on Project Iceberg but another $20 million required. The project is expected to provide riskless cash flows with a present value of $28 million once it is completed. Should Titanic proceed?
  1. Maybe
  2. No
Explanation
Answer: A - Maybe. Titanic should compare against their other projects to see if they can invest the money better elsewhere. However, the key to the question is recognizing that the $10 million already spent is a sunk cost. The decision now is just whether to spend the last $20 million to get the $28 million. Titanic has already blown the other $10 million.

Key takeaway: Expended money is a sunk cost. It’s hard to accept sometimes, but one must make their decisions on the value on the table moving forward versus the future investment required.
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