Delaney Company is considering replacing equipment which originally cost $600,000 and which has $420,000 accumulated depreciation to date. A new machine will cost $790,000. What is the sunk cost in this situation?
Sunk costs are those that have been incurred for a project and will not be recovered if the project is terminated. While considering the replacement of an asset the depreciated book value of that asset is irrelevant as the amount is a sunk cost and will be written-off at the time of replacement.
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fromChapter 31 / Lesson 8
Understand the sunk cost definition. Learn the meaning of sunk cost and sunk cost trap with the help of the sunk cost examples and sunk cost fallacy examples.