Explain the effects of sunk costs and opportunity costs in deciding whether to accept a project....
- Explain the effects of sunk costs and opportunity costs in deciding whether to accept a project. Review the financial considerations a company should make before investing in a project.
Homework Answers
Sunk Costs: Sunk Costs are the costs which have already been incurred in the past and cannot be changed for example depreciation charged on machinery already purchased. These costs are not relevant for decision making since these costs will remain same under all the alternative courses of action.
Opportunity Costs: Opportunity Cost is the benefit foregone in accepting one option. The income that would have been earned had the option not been selected is known as opportunity cost. Opportunity Costs are relevant for decision making since it relates to future. It helps in real comparison among the available options.
Before accepting a project, a company should review all the associated costs and benefits along with opportunity costs of accepting the project.
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Explain the effects of sunk costs and opportunity costs in
deciding whether to accept a project....
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