Sunk Costs and Externalities

Related BrainMass Solutions

• Capital Investment Decisions: Sunk costs and timing options

  192421 Sunk costs and timing options: Q12-4 Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and externalities should be included.

• When evaluating potential projects, which of the following factors should be incorporated as part of a project's estimated cash flows: sunk costs, opportunity costs, externalities?

  Any externalities (both positive and negative) that are incurred if the project is undertaken. d. Statements b and c are correct. e. All of the statements above are correct (a) is wrong. Any sunk costs should not be considered.

• Are sunk costs, opportunity costs and externalities relevant for evaluating projects?

  Any externalities (both positive and negative) that are incurred if the project is undertaken. Incorrect. Externalities are costs incurred by third parties.

• Sunk costs

  263470 Sunk Costs for Capital Budgeting 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.

• A company is considering a proposed new plant that would

  When estimating the project's operating cash flows, it is important to include both opportunity costs and sunk costs, but the firm should ignore the cash flow effects of externalities since they are accounted for in the discounting process. 4.

• NPV

  The rent referred to in statement d is a sunk cost, and as such it should be ignored. a.

• Explain sunk cost,externality,cannibalization,depreciation

  Sunk costs were formerly hard to deal with, but once the NPV method came into wide use, it became possible to simply include sunk costs in the cash flows and then calculate the PV. e.

• Operating Cash Flows

  2 Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and externalities should be included.

• internal rate of return (IRR) for an insurance firm

  Any sunk costs that were incurred in the past prior to considering the proposed project. b. Any opportunity costs that are incurred if the project is undertaken. c.