Which of the following statements is CORRECT?
A) An example of a sunk cost is the cost associated with restoring the site of a strip mine once the ore has been depleted.
B) Sunk costs must be considered if the IRR method is used but not if the firm relies on the NPV method.
C) A good example of a sunk cost is a situation where a bank opens a new office, and that new office leads to a decline in deposits of the bank's other offices.
D) A good example of a sunk cost is money that a banking corporation spent last year to investigate the site for a new office, then expensed that cost for tax purposes, and now is deciding whether to go forward with the project.

Question

Quizplus · Accepted Answer

Sunk costs are past costs that have already been incurred and cannot be recovered. The money spent last year to investigate a site for a new office, which was then expensed for tax purposes, is a sunk cost because it cannot be recovered regardless of whether the project goes forward.

Which of the Following Statements Is CORRECT