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    Sunk costs

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    Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and externalities should be included. Give an example of each.

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    Solution Preview

    As per investorwords, Sunk cost is the cost already incurred which cannot be recovered regardless of future events.
    Hence Sunk cost is irrevelant as it has already been incurred in the past and it won't affect the project.

    For example company FSI would use a small storage facility to store the increased output of the new machine tool. The storage facility was built ...

    Solution Summary

    The response discusses sunk costs in capital budgeting.