When is it appropriate to include sunk costs in the evaluation of a project?
A) Include sunk costs when they are relatively large.
B) Include sunk costs if they improve the project's NPV.
C) Include sunk costs if they are considered to be overhead costs.
D) It is never appropriate to include sunk costs.

Question

Quizplus · Accepted Answer

It is never appropriate to include sunk costs in the evaluation of a project because they are already incurred and cannot be recovered, and therefore, they are irrelevant to the decision-making process concerning the project's future cash flows. The relevant costs that should be considered are the costs and benefits that will occur in the future as a result of the project.

When Is It Appropriate to Include Sunk Costs in the Evaluation