Question

Which of the following is not true with reference to capital budgeting?

• A. Capital budgeting is related to asset replacement decisions
• B. Cost of capital is equal to minimum required return
• C. Existing investment in a project is not treated as sunk cost
• D. Timing of cash flows is relevant

Answer 1

Answer: (C)

Existing investment in a project is not treated as sunk cost

Sunk cost is a cost that cannot be recovered and has been incurred already. Existing investment in a project is treated as a sunk cost as it is incurred in the past and cannot be recovered.