Which of the Following Statements Best Describes a Sunk Cost

question 2

Multiple Choice

Which of the following statements best describes a sunk cost?

• 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)A sunk cost is any cost not directly related to the physical work required to complete the project.

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Definitions:

Payback Method

Payback Method is a capital budgeting technique that calculates the time required for an investment to generate cash flows sufficient to recover the initial investment cost.

Investments

Assets or items acquired with the intention of generating income or appreciation over time, including stocks, bonds, real estate, or other vehicles.

Liquidity

The simplicity of turning an asset into cash without impacting its market value.

Terminal Value

An estimate of a project's or company's value at the end of a forecast period, extending beyond the period of explicit cash flow projections.