Question

Which of the following cash flows are NOT considered in the calculation of the initial outlay for a capital investment proposal?

All of the above should be considered

Sunk costs

After-tax salvage value of old equipment

Cost of Installing new equipment

Increase in net working capital requirements

Answer 1

Sunk costs

Step-by-step explanation:

The sunk cost is the cost already generated that will not be recovered in the future. However, it is also referred to as past expenses.

It is irrelevant at the time of decisions with respect to capital investment as this cost is useless.

So at the time of the capital investment proposal, the sunk cost should not be considered. The other cost which is related to the initial outlay would be considered