Which of the following statements best describes sunk costs?
A) A sunk cost is any cost that must be expended in order to complete a project and bring it into operation.
B) A sunk cost is any cost that was expended in the past but can be recovered if the firm decides not to go forward with the project.
C) A sunk cost is a cost that was incurred and expensed in the past and cannot be recovered if the firm decides not to go forward with the project.
D) Sunk costs were formerly hard to deal with, but once the NPV method came into wide use, it became possible to simply include sunk costs in the cash flows and then calculate the PV.

Question

Quizplus · Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered if the project is cancelled. Option A is not entirely accurate as not all costs that must be expended to complete a project are sunk costs. Option B is incorrect as sunk costs cannot be recovered. Option D is incorrect as including sunk costs in cash flows would not be a valid approach.

Which of the Following Statements Best Describes Sunk Costs