Question

Explain what is working capital and sunk cost?

Answer 1

Solution:
	Working capital is the amount invested by firm in its current assets in excess of its current liabilities.
	In other word , Working capital is the difference of its current assets & current liabilities.
	Working capital positive is considered good , as it shows firm is able to meets it operating expenses and payment of short term debt if any maturing.
	Working capital is mostly affected by these three accounts , accounts receivable, accounts payable and inventory of raw material & finished goods .
	Sunk cost are those cost which are not affected by whether project or offer is accepted or note.
	Sunk costs are generally periodic , fixed in nature or predefined . Like contract labor, employee salaries, Plant rent and so on.
	Sunk cost are ignored in decision making as it will continue to occurred whether other activities are done or not.
	Suck cost conditions are
1st	Past cost (historical cost), cost incurred before taking a decision.   OR
2nd	Future cost , the obligation of which has been already decided.
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