Capital Budgeting: The Irrelevance of Sunk Costs in Making Future Investment Decisions

When performing capital budgeting, __________ incurred by a project are irrelevant to future investment decisions.

sunk costs

When performing capital budgeting, sunk costs incurred by a project are irrelevant to future investment decisions.

Sunk costs are expenses that have already been incurred and cannot be recovered. They are not relevant in capital budgeting because they do not affect future cash flows or the future profitability of a project. Therefore, it is important to only consider relevant costs and benefits while making investment decisions. This helps to ensure that the decision-making process remains objective and rational, leading to better investment decisions.

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