Sunk Cost
Short definition
A sunk cost is cash or a commitment already spent and no longer recoverable. It does not enter forward NPV; only avoidable cash and opportunity cost do.
Detailed explanation
Land, a licence, a half-built plant and paid advisory fees are sunk. The decision is which cash you still avoid by stopping and which incremental cash you earn by continuing. Book net value is not the economic input; if the asset can be sold, that salvage is an opportunity cost and does enter.
The behavioural trap is “we have spent so much we must finish”. Finishing is right only if incremental NPV is positive. Contractual penalties that cannot be avoided are sunk; avoidable penalties are incremental.
Why it matters for the CFO
A board that completes a half-built plant “because it is on the books” writes a second cheque to a bad project.
How to read it
Continuing because book value is high is carrying a sunk cost forward. A stop decision is tested on salvage + released NWC minus shutdown cost.
Related calculators
Güven Sayılgan’s writing on this topic
Challenges in Determining Company Value in Türkiye
In Türkiye, company valuation becomes more complex because of inflation, interest-rate and exchange-rate uncertainty, limited access to sector data, and an unde
3 min read
Read → FinansIs Growth Always Good?
Rising sales are often treated as success; yet growth creates economic value only when it is backed by a sustainable business model, adequate profitability and
5 min read
Read →Read these first
Related terms
What to learn next
Definitions are educational. They are not investment, credit or tax advice.