1.6 - Irrelevance of Past Estimates
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Practice Questions
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What is the definition of sunk cost?
💡 Hint: Think about costs already incurred.
Why should we focus on current market value?
💡 Hint: Consider what affects current choices.
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Interactive Quizzes
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What should you exclude from your replacement analysis?
💡 Hint: Which reflects today’s situation better?
Are sunk costs relevant in making replacement decisions?
💡 Hint: Consider past costs versus future values.
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Challenge Problems
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A construction company initially invested $200,000 in a bulldozer. After 10 years, the current market value is $50,000. They have maintained it well, but operational costs are increasing. Outline their decision process based on replacement analysis.
💡 Hint: Focus on current financial implications rather than previous investments.
Explain a scenario where failing to recognize sunk costs might lead a manager to delay a beneficial equipment replacement.
💡 Hint: Consider emotions tied to money spent in the past.
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