A company paid $200,000 ten years ago for a specialized machine that has no salvage value and is being depreciated at the rate of $10,000 per year. The company is considering using the machine in a new project that will have incremental revenues of $28,000 per year and annual cash expenses of $20,000. In analyzing the new project, the $200,000 original cost of the machine is an example of a(n):

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The $200,000 original cost of the machine is a sunk cost, as it was paid ten years ago and has no salvage value. Sunk costs are not relevant in decision making and should not be included in the analysis of the new project. The other options are not applicable to this situation - a variable cost is a cost that changes with the level of activity, an opportunity cost is the cost of the next best alternative forgone, an out-of-pocket cost is a cash payment made for a resource or service, and an incremental cost is the additional cost or benefit resulting from a specific decision.

A Company Paid $200,000 Ten Years Ago for a Specialized