The sunk costs associated with an asset to be replaced should be:
A)ignored in the valuation of an capital budgeting project.
B)included as an initial period cash outflow in the evaluation of a capital budgeting project.
C)included as a project termination cash outflow in the evaluation of a capital budgeting project.
D)None of the above

Question

Quizplus · Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. Therefore, they should be ignored in the valuation of a capital budgeting project because they do not affect the future cash flows or the decision-making process related to the project.

The Sunk Costs Associated with an Asset to Be Replaced