Which of the following statements is CORRECT?
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 project's NPV.
E) A good example of a sunk cost is a situation where Home Depot opens a new store,and that leads to a decline in sales of one of the firm's existing stores.

Question

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered, regardless of whether or not the project moves forward. Option A is incorrect because not all costs required to complete a project are sunk costs. Option B is also incorrect because sunk costs, by definition, cannot be recovered. Option D is partially correct but is not a statement about sunk costs specifically. Option E is incorrect because a decline in sales of an existing store is not a sunk cost.

Which of the Following Statements Is CORRECT