Sunk Cost are costs that have already been incurred, cannot be recouped and therefore are not relevant when making Capital Budgeting decision.
ABC Corporation is evaluating the net present value (NPV) of a new product line. ABC Corporation spent $50,000 a year ago on market research for this product line. Should ABC Corporation factor in the market research costs when determining the Net Present Value (NPV) of the project? The answer is no! The costs has already occurred and cannot be recouped. The focus needs to be on the change in future Cash Flow s if the company accepts or rejects this project.
