Question

Last year, you purchased land to build a retail store. You paid $20 million for the land. Another business has now offered $8 million for the land and that is the highest price your business should now be able to get for the land. Which of the following costs is relevant for your decision as to whether or not you should build a new retail store?a. $8 millionb. $12 millionc. $20 milliond. $28 million

Answer 1

Answer:

a. $8 million

Explanation:

In the given situation, the $8 million is the best price to finalize your decision as $20 million costs is that cost which is paid last year and these costs are called sunk cost which is not recovered in the future, that means it is already incurred in the past.  

Moreover, the sunk cost is not a part of the future decision as this cost is irrelevant now

So, $8 million is a relevant cost to make a better decision