Sunk costs are unrecoverable past expenditures. These should not normally be taken into account when determining whether to continue a project or abandon it, because they cannot be recovered either way. It is a common instinct to count them, however. It also referred to as “stranded cost.” For e.g. a worn-out piece of equipment bought several years ago is a sunk cost because the cost of buying it cannot be reversed. Thus sunk costs are the part cash outflows which have already been incurred and therefore have no effect on the cash flows relevant to the current decision.
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