The Following Statements About the "Sunk Cost Fallacy" Are True

question 348

Multiple Choice

The following statements about the "sunk cost fallacy" are true, except

• A)it's the tendency to drag past costs into current marginal cost-benefit calculations.
• B)it comes from a desire to "get one's money's worth" out of a past expenditure.
• C)it refers to the fact that average fixed costs are not a major part of production costs.
• D)it could lead one to "throw good money after bad."

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Definitions:

Bankruptcy Claims

Financial demands made by creditors against a debtor who has declared bankruptcy.

Debt/Equity Ratio

The financial ratio that illustrates the use of shareholders' equity versus debt in funding company assets.

M&M Proposition II

A firm’s cost of equity capital is a positive linear function of its capital structure.

Cost of Capital

The cost of funds used for financing a business, typically considered as the weighted average of the costs of equity and debt financing.