A company spent ₹ 2,00,000 last year on a feasibility study for a new plant. In deciding today whether to build the plant, how should this amount be treated?

Correct answer: B) Ignored, because it is a sunk cost that cannot be recovered whatever the decision

Explanation

Capital budgeting uses only incremental future cash flows that depend on the decision. Money already spent cannot be recovered whether or not the plant is built, so it is a sunk cost and is ignored. Opportunity costs, by contrast, must be included.