Bill Lear wrote: > No, but debt is history, and if sunk costs were financed through > issuing debt, they would sure as hell care about history.
Shane Mage: > But debt service is a current and future, not sunk, cost. > However, the bridge example is a bad one--it would cost much more to remove > and scrap it than to finish construction. The builder would want to declare > bankruptcy and walk away--as so many are doing with the "sunk costs" of > uncompleted shopping malls and Macmansions. right, the accumulation of debt (and the payment of the costs that are now sunk) are merely history and thus "bunk" from the point of view of latter-day Henry Fords, to be ignored in profit-seeking activities. But as a result of the past borrowing, a firm owes interest and principal which must be paid, while as a result of paying the now-sunk costs, there's a partially-created bridge. Shane's analysis of the bridge simply makes it more realistic. The "rational entrepreneur" does not care about the past. Instead, what's important are current and future costs and benefits of scrapping, current and future costs and benefits of just letting the bridge stand, and current and future costs and benefits of finishing the bridge, along with the current and future costs and benefits of declaring bankruptcy. -- Jim Devine / "laugh if you want to / really is kinda funny / cause the world is a car / and you're the crash test dummy" -- Devil Makes Three. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
