What is a sunk cost? Should it be included in the incremental cash flows for a project? Why or why ...

johnpaech

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6 years ago

What is a sunk cost? Should it be included in the incremental cash flows for a project? Why or why ...

What is a sunk cost? Should it be included in the incremental cash flows for a project? Why or why not?

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Corporate Finance: The Core

Edition: 4^th

Authors: Berk, DeMarzo

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deusmaroto

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6 years ago

A sunk cost is any unrecoverable cost for which the firm is already liable. Sunk costs will have to be paid regardless of the decision whether or not to proceed with the project. Therefore, sunk costs are not incremental with respect to the current decision regarding the project and should not be included in its analysis.

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