When Is It Appropriate to Include Sunk Costs in the Evaluation

question 90

Multiple Choice

When is it appropriate to include sunk costs in the evaluation of a project?

• A)include sunk costs when they are relatively large
• B)include sunk costs if it improves the project's NPV
• C)include sunk costs if they are considered to be overhead costs
• D)it is never appropriate to include sunk costs

---

Definitions:

Financing Activity

Transactions involving the flow of cash between a company and its investors and creditors, related to equity and debt.

Noncash Investing

Transactions that involve the acquisition or disposal of assets not involving immediate cash flow.

Indirect Method

A method used in cash flow statements to calculate net cash flow from operating activities by adjusting net income for changes in non-cash accounts like accounts receivable, accounts payable, and depreciation.

Current Liability

A financial obligation that is due within one year or within the normal operating cycle of the business, whichever is longer.