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I have question about sunk cost. As we all know sunk cost is the cost which incurred in the past therefore it is irrelevant cash flow to the project.
But there is a question in my assignment, said a research has been carried out at a cost of 500,000 before the company investing in the new project. And the cost will be paid after the investment.
So I want to ask if this 500,000 relevant to this project. I am confused because the research happened in the past but the cost incurred in this accounting period. So I am not sure whether this is sunk cost or not.
Sunk cost are costs that are incurred what ever you decide about the project.
You would have to pay this £500,000 even if you decided not to proceed with the project, hence it is a sunk cost.
The timing of the payment is irrelevant.
Thank you for your reply! It is really helpful!