A Company is expanding and has already signed a lease on a new office that costs

Question

A Company is expanding and has already signed a lease on a new office that costs $10,000 per month. the company also needs a new information system and hireda consultant to recommend new software. The consultant was paid $5,000 for her recommendations. Now the company is trying to make a choice between three competing software products. In the capital budgeting decision to purchase new software, the monthly rent for the office space is __what and the consultant fee is what?

A)a sunk cost, a sunk cost
B) an opportunity cost, a sunk cost
C)a sunk cost, a part of the initial outlay
D)incremental cash outflow, an opportunity cost

Explanation / Answer

Since the company is expanding, it has signed a lease that costs $10,000 per month. The company also hired a consultant to recommend new software. As it is planning to implement the new software, it hired a new consultant and the consultant fees $5000 is a sunk cost because whether the new software would be implemented or not the company has already spent $5000.
The company whether implements the decision to purchase the new software or not, but it has already signed a lease agreement to rent the office that costs $10,000 per month. The rent on the office is a sunk cost because it has already signed a lease agreement and is obligated to pay the rent until the lease agreement. Therefore, both the costs monthly rent and the consultant fees are sunk costs. The correct option is a) Sunk cost, Sunk cost.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.