Question: Project Funding
As the President of XYZ's largest subsidiary, you have two project proposals on your desk.
I. Last year, we approved Project I. Upon completion, it will generate $100 M in revenue, and cost $90M. You spent the $90M. The proposal before you now states that an additional $20M is required to complete the project and realize the $100M in revenue. If you do not spend the additional $20M, no revenues will be realized.
II. Project II will generate $80 M in revenue. A trusted advisor tells you that you can secure this deal at a cost of $20 MM. Now consider the following questions:
a. If you had $100 MM to invest today, which project(s) would you fund?
b. If you had $20 MM to invest today, which project(s) would you fund?
c. If you had known from the start that there would be the additional $20MM required to complete Project I, would it still have deserved funding?