1.7. Defining Sunk Cost

Try these first

1. 1.

   Define sunk cost.

   Hint

   Think about money spent on a service or product that you can no longer use.

2. 2.

   Why should sunk costs not influence current decisions?

   Hint

   Consider how what was spent influences future expenses.

3. 3.

   What is a sunk cost?

   • A cost that can be recovered later.
   • A cost that has already been incurred and cannot be recovered.
   • An expected future cost.

   Hint

   Remember, it's about irrecoverable money.

4. 4.

   True or False: Sunk costs should influence your decision to replace old equipment.

   • True
   • False

   Hint

   If you've already spent it, should it impact tomorrow's choices?

5. 5.

   A company bought a software system for $150,000. After two years, its market value drops to$80,000. If they continue investing in updates costing $20,000 a year, at what point should they consider replacing it?

   Hint

   Focus on performance and savings, not the original price.

6. 6.

   Your friend spent $40,000 on a used car. Now, it's worth$15,000, and they're considering a new car worth $25,000. What advice would you give about the sunk cost?

   Hint

   Consider how much usage they get from the current versus the future possibilities.