A company paid $200,000 ten years ago for a specialized machine that has no salvage value and is being depreciated at the rate of $10,000 per year.The company is considering using the machine in a new project that will have incremental revenues of $28,000 per year and annual cash expenses of $20,000.In analyzing the new project,the $200,000 original cost of the machine is an example of a(n) :

A) Incremental cost.
B) Opportunity cost.
C) Variable cost.
D) Sunk cost.
E) Out-of-pocket cost.

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Julianna Esposito · Accepted Answer

Final Answer : D, Explanation :  The $200,000 original cost of the machine is a sunk cost because it has already been incurred and is not relevant to the decision of whether or not to use the machine for the new project. The incremental revenues and cash expenses are relevant costs that should be considered. Therefore, the answer is D) Sunk cost.

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