Fox Entertainment is evaluating the NPV of launching a new iPet product.Fox paid a market research firm $120,000 last year to test the market viability of iPet.Fox Entertainment should treat this $120,000 as a ____ for the capital budgeting decision now confronting the firm.

Question

Quizplus · Accepted Answer

The $120,000 paid to the market research firm is a sunk cost as it is a cost that has already been incurred and cannot be recovered. It should not be considered in the capital budgeting decision as it doesn't affect the future cash flows of the iPet product.

Fox Entertainment Is Evaluating the NPV of Launching a New