What is a sunk cost quizlet?
Sunk Costs. is a cost that has already been incurred and cannot be recovered. Prospective Costs. are costs that may be incurred or changed if an action is taken.
What is the meaning of sunk cost?
sunk cost, in economics and finance, a cost that has already been incurred and that cannot be recovered. In economic decision making, sunk costs are treated as bygone and are not taken into consideration when deciding whether to continue an investment project.
Which is an example of a sunk cost quizlet?
A good example of a sunk cost is money that a banking corporation spent last year to investigate the site for a new office, then expensed that cost for tax purposes, and now is deciding whether to go forward with the project.
Which is an example of a sunk cost?
A sunk cost, sometimes called a retrospective cost, refers to an investment already incurred that can’t be recovered. Examples of sunk costs in business include marketing, research, new software installation or equipment, salaries and benefits, or facilities expenses.
What is sunk or stranded cost?
A sunk cost is a cost that an entity has incurred, and which it can no longer recover. Sunk costs should not be considered when making the decision to continue investing in an ongoing project, since these costs cannot be recovered.
What is sunk cost and opportunity cost?
A sunk cost is money already spent in the past, while opportunity cost is the potential returns not earned in the future on an investment because the capital was invested elsewhere. 1. Buying 1,000 shares of company A at $10 a share, for instance, represents a sunk cost of $10,000.
What are some common examples of the sunk cost fallacy?
For example, individuals sometimes order too much food and then over-eat just to “get their money’s worth”. Similarly, a person may have a $20 ticket to a concert and then drive for hours through a blizzard, just because she feels that she has to attend due to having made the initial investment.
Which item is not an example of sunk cost?
The laptop is not a sunk cost because it has some resale value.
What do you mean by sunk?
1 : depressed in spirits. 2 : done for, ruined. Synonyms Example Sentences Phrases Containing sunk Learn More About sunk.
What is sunk cost Mcq?
Solution(By Examveda Team)
A sunk cost is a cost that cannot be recovered or changed and is independent of any future costs a business may incur. Since decision-making only affects the future course of business, sunk costs should be irrelevant in the decision-making process.
How do you find sunk cost?
A sunk cost is defined as “a cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business may face, such as inventory costs or R&D expenses, because it has already happened. Sunk costs are independent of any event that may occur in the future.”
What is difference between sunk cost and relevant cost?
As an example, relevant cost is used to determine whether to sell or keep a business unit. The opposite of a relevant cost is a sunk cost, which has already been incurred regardless of the outcome of the current decision.
How can sunk costs be avoided?
The best way to avoid the sunk cost trap is to set investment goals. To do this, investors could set a performance target on their portfolio. For example, investors might seek a 10% return from their portfolio over the next two years, or for the portfolio to beat the Standard and Poor’s 500 index (S&P 500) by 2%.
Is Rent a relevant cost?
Rent – this is not a relevant cost. Irrespective of how the company might use the floor space in the factory to generate a return, there is no change in cash flow relating to the rent as a result of the new machine. Cost of machine – this is a relevant cost as $2.1m has to be paid out.
Which of the following is an example of a sunk cost as it relates to a firm?
A sunk cost refers to a cost that has already occurred and has no potential for recovery in the future. For example, your rent, marketing campaign expenses or money spent on new equipment can be considered sunk costs. A sunk cost can also be referred to as a past cost.
Why sunk costs are important?
Importance of sunk costs
If an industry has high sunk costs – then this creates a barrier to entry. A firm will be more reluctant to enter the industry if it needs to spend a lot of money – that it can’t get back if it needs to leave.
Do sunk costs affect economic profit?
Economic profit is all profit greater than the opportunity costs. Economic profit is also called rent. Sunk costs are unrecoverable costs that a firm expends on a project. Economists argue that sunk costs should never enter into current decisions.