If a firm buys a specialized metal stamping machine that will last 4 years for $125,000 and cannot resell it, the sunk cost is
A)$0.
B)$31,250.
C)$125,000.
D)$93,750.

Question

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered, regardless of future decisions. In this scenario, the firm has already spent $125,000 on the metal stamping machine and cannot resell it. Therefore, the sunk cost is $125,000. As sunk costs should not be factored into future decisions, the amount spent on the machine should not be considered in any future cost analysis.

If a Firm Buys a Specialized Metal Stamping Machine That