Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 21 Nov 2017 My Price 6.00

True.Sunk Costs

Sunk costs are bygones, i.e., they are unaffected by the decision to accept or reject a project. They should therefore be ignored.

  True
  False

 

  • True.Sunk Costs are the costs which have already been incurred. They are considered irrelevant in decision making. Best example of sunk cost is research and development expenditure.

    Ex - Sunk cost $1,000. Cash Inflows of project $2,000, Cash outflows of Project$1,500.

    NPV if sunk cost is not considered = 2,000- 1,500 = 500 Positive Accept

    NPV if sunk cost is considered = 2,000- 1,500 - 1,000 = 500 Negative Reject.

    But we should never cosider sunk cost as it has been already incurred. Decision making should only be done on the basis of future cost and benefits of a project. Costs which have already been incurred should be ignored.

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Maurice Tutor
(5)
Status NEW Posted 21 Nov 2017 05:11 PM My Price 6.00

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