Sunk costs must be considered if the IRR method is used but not if the firmrelies on the NPV methodA good example of a sunk cost is a situation where a bank opens a newoffice, and that new office leads to a decline in deposits of the bank’s otherofficesCorrect!A good example of a sunk cost is money that a banking corporation spentlast year to investigate the site for a new office, then expensed that cost fortax purposes, and now is deciding whether to go forward with the projectIf sunk costs are considered and reflected in a project’s cash flows, then theproject’s calculated NPV will be higher than it otherwise would beQuestion 145 / 5 ptsWhich of the following should be considered when a company estimates thecash flows used to analyze a proposed project?
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