Resolved: Cumulative cost
Wht are we calculating the accumlated cost at minute 3:40 ?
3 answers ( 1 marked as helpful)
Hi, Laith Kaddoumi, MSc
Thanks for reaching out! The cumulative cost at a specific time, such as at minute 3:40, is generally calculated to assess the total expenditure incurred up to that point in a given process or project. This allows us to monitor spending and evaluate performance against budgets or forecasts. If you have a specific context in which this calculation is being done or relate it to a particular project, feel free to share more details so I can provide you with a more tailored explanation!
I don't understad the graph at minute 4:37
Hi Laith,
Thanks for reaching out!
The reason we calculate the cumulative (accumulated) cost at around 3:40 is to show how much total capital the company has invested as it accepts projects one by one, starting from the highest IRR. Each project is ranked by IRR, and as we move down the list, we keep adding the initial cost of each new project to get the cumulative cost.
This cumulative amount is what appears on the horizontal (X) axis of the Investment Opportunity Schedule graph.
In other words, cumulative cost tells us where each project ends on the graph horizontally and allows us to visually compare project returns (IRR) with the Marginal Cost of Capital (MCC).
Without calculating cumulative cost, we wouldn’t be able to draw the IOS correctly or identify the exact point where IRR falls below MCC, which is the point where the firm should stop investing.
Kind regards,
The 365 Team
Thanks for reaching out!
The reason we calculate the cumulative (accumulated) cost at around 3:40 is to show how much total capital the company has invested as it accepts projects one by one, starting from the highest IRR. Each project is ranked by IRR, and as we move down the list, we keep adding the initial cost of each new project to get the cumulative cost.
This cumulative amount is what appears on the horizontal (X) axis of the Investment Opportunity Schedule graph.
In other words, cumulative cost tells us where each project ends on the graph horizontally and allows us to visually compare project returns (IRR) with the Marginal Cost of Capital (MCC).
Without calculating cumulative cost, we wouldn’t be able to draw the IOS correctly or identify the exact point where IRR falls below MCC, which is the point where the firm should stop investing.
Kind regards,
The 365 Team