Asked by Hilda Yaa Amponsah on Jun 08, 2024
Verified
The basic capital budgeting principles involved in determining after-tax incremental operating cash flows require us to:
A) include sunk costs, but ignore opportunity costs.
B) include opportunity costs, but ignore sunk costs.
C) ignore both opportunity costs and sunk costs.
D) include both opportunity and sunk costs.
Opportunity Costs
The cost of forgoing the next best alternative when making a decision, representing the benefits one could have received by taking an alternative action.
Sunk Costs
Expenses that have been spent and cannot be retrieved.
- Recognize the difference between significant and insignificant costs in project appraisal, including an awareness of sunk costs and opportunity costs.
Verified Answer
CS
Chris SandersJun 13, 2024
Final Answer :
B
Explanation :
The basic capital budgeting principles involved in determining after-tax incremental operating cash flows require us to include opportunity costs, but ignore sunk costs. Opportunity costs are the benefits foregone by choosing one investment option over another, while sunk costs are costs that have already been incurred and cannot be recovered. Therefore, sunk costs are not relevant to the decision-making process.
Learning Objectives
- Recognize the difference between significant and insignificant costs in project appraisal, including an awareness of sunk costs and opportunity costs.