The total amount of sunk costs in this scenario is $500,000 (Current value $600000 - New equipment cost $500000 = $100000 + Old equipment $400000 = $500000.
Money that has already been spent and cannot be recouped is known as a sunk cost. The sunk cost phenomenon in business is an example of the notion that one must "spend money to make money." A sunk cost is distinct from potential future expenses a company might incur, like choices regarding the price of products or the cost of purchasing inventory.
Sunk costs and prospective costs future expenses that could be avoided if action is taken are contrasted.
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