Which of the Following Statements Best Describes Sunk Costs

question 11

Multiple Choice

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.

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Definitions:

Compounded Semiannually

This refers to the process where interest on a loan or investment is calculated twice a year and added to the principal amount, affecting future interest calculations.

Tenth Year-end Deposit

A deposit made at the end of the tenth year, often in the context of savings or investment plans.

Compounded Annually

A method of calculating interest in which the accumulated interest is added to the principal sum at the end of each year, increasing the amount of interest earned in subsequent years.

Equal Payments

A method of recurring payment where the same amount is paid in each period, commonly used in loans and leases.