Which of the following is true of sunk costs?
A)Similar to opportunity costs
B)Not included in initial cash flow
C)Often combined with terminal cash flow
D)Deciding factor in most project decisions
E)Similar to variable costs

Question

Quizplus · Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered, therefore they are not included in initial cash flow calculations. The other options are incorrect: 
A) Opportunity costs are the benefits foregone by choosing one course of action over another, not the same as sunk costs.
C) Sunk costs are not typically combined with terminal cash flow - terminal cash flow is the cash flow at the end of a project's life.
D) Sunk costs should not be a deciding factor in most project decisions because they are irrelevant to future decisions - only future costs and benefits matter.
E) Sunk costs are not the same as variable costs - variable costs are costs that vary directly with the level of production, while sunk costs have already been incurred.

Which of the Following Is True of Sunk Costs