Suppose that Wheaton College has decided to build a new science center. The ground breaking for the new science center occurred in 2008. Construction was expected to cost roughly $4 million.∗ The benefits of building a new science center (what do you think these would involve?) were estimated at $5.5 million. By 2010, however, prospects did not look so rosy due to worsening economic conditions and budgetary worries. The total estimated cost had also risen to $6 million of which $2 million had already been spent. (a) Had the Board of Trustees foreseen these difficulties in 2008, should they have started the project? Explain. (b) Now that it is 2010 and assuming calculated benefits have not changed, should they complete the project? Explain.

Suppose that Wheaton College has decided to build a new science center. The ground breaking for the new science center occurred in 2008. Construction was expected to cost roughly $4 million.∗ The benefits of building a new science center (what do you think these would involve?) were estimated at $5.5 million. By 2010, however, prospects did not look so rosy due to worsening economic conditions and budgetary worries. The total estimated cost had also risen to $6 million of which $2 million had already been spent. (a) Had the Board of Trustees foreseen these difficulties in 2008, should they have started the project? Explain. (b) Now that it is 2010 and assuming calculated benefits have not changed, should they complete the project? Explain.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...

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