3. Investment

Sunk Vs Incremental — Quiz

Test your understanding of sunk vs incremental with 5 practice questions.

Practice Questions

Question 1

A company is considering a new project. They have already invested $1,000,000$ in specialized equipment that cannot be sold or used for any other purpose. The decision to proceed with the project requires an additional investment of $2,000,000$. How should the initial $1,000,000$ investment in specialized equipment be treated in the current investment decision?

Question 2

Which of the following scenarios most accurately represents an opportunity cost in the context of evaluating a new capital project?

Question 3

A company is launching a new smartphone that is expected to increase sales of its existing wireless headphones by $15\%$ due to complementary use. However, it is also expected to decrease sales of its existing smartwatches by $5\%$ due to competition for consumer spending. How should these effects on existing product sales be categorized in the new smartphone project's financial analysis?

Question 4

When calculating the initial investment for a new project, which of the following components is typically NOT considered an incremental cash flow?

Question 5

A company is evaluating a project to expand its production capacity. They have already spent $250,000$ on a market analysis report. The expansion project will cost an additional $5,000,000$. If the company proceeds, they will also need to increase inventory by $100,000$. What is the total relevant initial cash outflow for this expansion project?