Which of the following is an example of a sunk cost in a capital budgeting decision regarding the purchase of new equipment for a profitable business that pays taxes?

Question

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. In this case, the purchase price of the equipment to be replaced is a sunk cost because it has already been paid for and cannot be recovered even if the decision is made not to purchase the new equipment. The disposal of the equipment to be replaced, the additional working capital requirement, and the operating cost of the new equipment are not sunk costs as they can be avoided or minimized by the capital budgeting decision.

Which of the Following Is an Example of a Sunk