Sunk Cost

A sunk cost is one that has already been made and cannot be recouped. In the case of incomplete projects where an initial investment has already been made, changing business or economic conditions may dictate that because cash flows from the project have deteriorated, the better and more rational option is to ignore the sunk cost and cancel the project. The sunk cost has been lost but the new conditions may mean it is better to save the costs required to finish the project because the lower projected project revenues will not create a profitable outcome over the long term.


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