CFA Practice Question

There are 233 practice questions for this study session.

CFA Practice Question

The government has been trying to decide whether or not to purchase any of the new, advanced missiles it has developed. One of the arguments in favor of purchasing the missiles is that so much money has been spent on their development that it would be a waste of money not to buy any. What is the major problem with this argument?
A. It includes financing costs in the decision.
B. It includes sunk costs in the decision.
C. It ignores the opportunity cost of the money that has been spent.

User Contributed Comments 4

User Comment
kellyyang what is Sunk cost ?
sh21 costs that have already incurred and are therefore not relevant for decision making purposes.
gjk2103 I'm confused by the question--why does it read "include sunk costs in the decision" as a major problem in the argument?

My thought process was that to "exclude sunk costs" is a major problem in the argument.
jnptrsn1 GJK: If there was a world where there were two countries, and country A had spent a billion dollars developing a missile defense platform, it would be foolish for them to say "we've already spent a billion developing it, why not make some of them?" if the second country had a military that consisted of knights and medieval infantry.
You need to log in first to add your comment.