Sunk costs:
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A. B. C. D.Explanation
Sunk costs represent expenses that have already been incurred or committed to. Therefore, they are not pertinent to future decisions.
Sunk costs are costs that have already been incurred and cannot be recovered. These costs are irrelevant for decision-making purposes because they cannot be changed or avoided. When evaluating a project, it is important to consider only the future costs and benefits that can be influenced by the decision at hand.
Option A states that sunk costs should be ignored while evaluating a project, and this is the correct answer. Sunk costs are not relevant to the decision-making process because they are already spent and cannot be recovered. Making decisions based on sunk costs can lead to irrational behavior and can potentially harm the project's desirability.
Option B states that sunk costs adversely affect a project's desirability. However, this statement is incorrect. Sunk costs have no bearing on the project's desirability because they are costs that have already been incurred and cannot be changed.
Option C states that sunk costs are incremental cash flows of the project under consideration. This statement is incorrect. Sunk costs are not incremental cash flows; they represent costs that have already been incurred and are unrelated to the future cash flows of the project.
Option D states that sunk costs lower a project's NPV (Net Present Value). This statement is incorrect. Sunk costs do not affect a project's NPV because they are not included in the calculation of NPV. NPV considers only the future cash flows and the appropriate discount rate, not the sunk costs.
In summary, the correct answer is option A. Sunk costs should be ignored while evaluating a project because they are costs that have already been incurred and cannot be recovered.