The rationale for not including sunk costs in capital budgeting decisions is that they:
A) are usually small in magnitude.
B) revert at the end of the investment.
C) have no incremental effect.
D)reduce the project's net present value.

Question

Quizplus · Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. Therefore, they have no incremental effect on future cash flows and do not affect the profitability of a project going forward. Thus, they should not be considered in capital budgeting decisions.

The Rationale for Not Including Sunk Costs in Capital Budgeting