Which of the following statements is CORRECT? a. A good example of a sunk cost i

Question

Which of the following statements is CORRECT?

a. A good example of a sunk cost is a situation where a bank opens a new office, and that new office leads to a decline in deposits of the bank's other offices. b. 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. c. Sunk costs must be considered if the IRR method is used but not if the firm relies on the NPV method. d. An example of a sunk cost is the cost associated with restoring the site of a strip mine once the ore has been depleted. e. If sunk costs are considered and reflected in a project's cash flows, then the project's calculated NPV will be higher than it otherwise would be.

Explanation / Answer

Costs incurred in the past and committed costs are called sunk costs. Reason is, these costs do not have any importance in decision making. Sunk costs are irrelevant costs.

Amount spent on investigation is cost spent and does not have relevance in decision making.

Hence, correct option is (B)

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

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