Which of the Following Statements Best Describes Sunk Costs

question 23

Multiple Choice

Which of the following statements best describes sunk costs?

• 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 money that a banking corporation spent last year to investigate the site for a new office, then expensed those funds for tax purposes, and now is deciding whether to go forward with the project.
• D) If sunk costs are considered and reflected in a project's cash flows, then the project's calculated NPV will be higher than it otherwise would be.