When Is It Appropriate to Include Sunk Costs in the Evaluation

question 63

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 they improve 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.

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Definitions:

Takings Clause

A clause in the Fifth Amendment of the U.S. Constitution requiring that when government uses its power to take private property for public use, it must pay the owner just compensation, or fair market value, for the property. Also called just-compensation clause.

Just Compensation

The fair payment required to be given to a property owner when their property is taken for public use, under eminent domain.

Self-Incrimination

The act of exposing oneself to prosecution by being forced to respond to questions or by providing evidence in a legal proceeding.

Fifth Amendment

The Fifth Amendment refers to a part of the United States Constitution that provides several protections to individuals, including rights against self-incrimination and double jeopardy, and the assurance of due process.