Question

Which of the following cash flows are NOT considered in the calculation of the initial outlay for a capital investment proposal? (A) Increase in net working capital requirements(B) Cost of Installing new equipment(C) Sunk costs After-tax salvage value of old equipment(D) All of the above should be considered

Answer 1

The correct option is C

Step-by-step explanation:

Sunk cost is the cost which is incurred by an entity but cannot be recovered. It is considered when making a decision whether to continue investing in the ongoing project or proposal as it is unrecoverable.

Therefore, it is not considered in the investment proposal, as these are already been incurred and should not affect the investment decision of the business.