Sunk costs are cash outlays that have already been made and therefore have no effect on the cash flows relevant to the current decision. As a result, sunk costs should not be included as relevant in computing a project's incremental cash flows.

Question

Quizplus · Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered, and therefore have no effect on the future cash flows of a project. Including sunk costs in the calculation of incremental cash flows would lead to an incorrect analysis of the project's profitability.

Sunk Costs Are Cash Outlays That Have Already Been Made