Economics Capital Budgeting Questions
Sunk costs refer to the costs that have already been incurred and cannot be recovered regardless of the decision made. In capital budgeting decisions, it is important to ignore sunk costs because they are irrelevant to the decision-making process. The focus should be on future costs and benefits that will be incurred as a result of the decision. By considering sunk costs, decision-makers may be influenced by past investments and may make irrational decisions that are not in the best interest of the company. Therefore, to make rational and effective capital budgeting decisions, it is crucial to ignore sunk costs and focus on the future costs and benefits associated with the investment.