What is a Sunk Cost? A sunk cost refers to a cost that has already been incurred and which cannot be recovered by any means in the future. A sunk cost varies from the potential costs that a company may face, such as decisions about the cost of purchasing tools for production, etc. An example of the sunk cost would be, suppose you buy a ticket of a movie for Rs 750 but then later you realize that you have an important assignment due on the same night. The Rs 750 already spent - the sunk cost - shouldn’t be considered when deciding whether the assignment should be completed or not because the cost of a movie ticket (a sunk cost) is already incurred and is irretrievable. The only thing that should matter is the expected future returns that one will render after the completion of a particular project/work/investment. If completing an assignment is comparatively fruitful then the movie ticket cost shouldn’t be considered.
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