Cost Recovery for Research Operation Assignment
February 19th, 2020
- An alternative energy researcher specializing in deriving oil from algae is constructing a building in Florida to take advantage of the higher levels of sunlight, temperatures, and humidity necessary to foster the growth of algae. The building is a specialized building that will have climate-controlled rooms as well as very high levels of insulation to maintain a steady temperature. It will also have an extensive array of solar panels on the roof to create more lighting and higher temperatures and humidity for algae growth. Answer the following questions regarding his move:
- Once the building is constructed, would you consider this building to be a “sunk cost” or a cost that could be recoverable in the future when it is sold? Explain your response.
- From the standpoint of risk and reward, does an elaborate building specifically designed for algae production and alternative energy research seem like a speculative venture or a sound investment given the uncertain nature of the research outcomes?
- One of the problems with incurring costs, sunk or otherwise, is that ultimately all costs must be recovered or a firm will go out of business. What is the unique situation regarding cost recovery for a research operation such as this? Explain.
The explanation must be one paragraph long. The explanation must be clear, persistent, and list the number for each answer. .