2.3 - Sunk Cost Explanation
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Practice Questions
Test your understanding with targeted questions
Define sunk cost in your own words.
💡 Hint: Think about how past investments affect current choices!
What is the current operating cost of the challenger?
💡 Hint: Refer back to the discussion on operating and maintenance costs.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What defines a sunk cost?
💡 Hint: Remember the definition we discussed in class.
True or False: Salvage value of equipment should be considered in replacement analysis.
💡 Hint: Think about how salvage value impacts overall costs.
2 more questions available
Challenge Problems
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A company has incurred a cost of 5,00,000 on their current equipment, and its current salvage value is 3,00,000. Explain whether they should consider this cost in a decision about replacing this equipment with a new one costing 4,00,000 with a projected salvage value of 1,00,000.
💡 Hint: Consider how ignoring past costs could lead to better decision-making.
Given the defender and challenger, if the annual operating costs are reduced by 50% with the challenger, calculate the savings over 5 years, ignoring any sunk costs.
💡 Hint: Calculate the difference first, then multiply by the number of years.
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