Sunk Cost: Sunk cost is the cost that has already been incurred, and there is no way to recover

this cost. As the name implies the money is sunk, gone, down the drain, history. There is no calculation required for arriving at the Sunk Cost. It is always equal to the Actual Cost spent to date. According to Wikipedia In Economics and Business decision-making, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered. Most project managers get emotional about the past costs sunk costs. The human mind tries to justify that what you did previously was still good, and that you should try to continue it. Thus, it is difficult to ignore the sunk cost, and you try to cling to it. This is wrong. You should never spend new good money (future project cost) on anything that does not make sense today, even though you have invested heavily into it in the past. Past is past. While making future decision, do not cloud your thinking with it. Ignore the Sunk Cost, and make the decision based on the merit of the project and its benefit in current terms, in todays value. Money already spent and permanently lost. Sunk costs are past opportunity costs that are partially (as salvage, if any) or totally irretrievable and, therefore, should be considered irrelevant to future decision making. This term is from the oil industry where the decision to abandon or operate an oil well is made on the basis of its expected cash flows and not on how much money was spent in drilling it Sunk Costs are retrospective (past) costs that have already been incurred and cannot be recovered Sample PMP Question: Q: The management is reviewing the budget for the year 2013, and is evaluating the projects ROI, and its usefullness in the market. The management is also going to look at the projects that were started in the past 5 years, but were put on hold for some reason. In making future project decisions, which of the following should not be considered? A. Earned Value B. Benefit Cost Ratio C. Sunk Cost D. Fixed Cost
Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen). http://preparepm.com/notes/cost.html- Cost Management http://www.pmlead.net/ Depreciation Assets lose value over time which is called depreciation Straight line depreciation( Equal value is lost EACH year of usage)

Accelerated depreciation ( More value is lost in the beginning of the usage) b Double declining balance ( Double the rate of straight line depreciation) Sum of the years digits ( Based on formula for sum of years)

An asset is purchased on Mar 12th at a cost of $100,000 and is expected to have a salvage value of $15,000 at the end of its useful life of 10 years. What is the book value (using Double declining method) of the asset after 3years?
Since long back depreciation based questions are not asked. Even Rita Has cleared about and given few guidance. 100000-15000=85000 10 yrs given , hence 100%/10=10% straight depreciation double means 20% 20% of 85000 = 17000 in 1st year book value= 68000 20% of 68000 = 13600 in 2nd year book value = 54400 20% of 54400 = 10880 in 3rd year book value = 43520
A $1000 item with a 10 yearsuseful life and no salvage value(How much item is worth at the end of the its life)

Life is 10 Years & no salvage So 1000/10=10 as this is accelerated a took 10*2=20 per ysar(1000/10=10*2=20) 1 Year=1000*20/10=200 2 Year=800*20/100=160 3 Year =640*20/100=128 The difference in the answer is because there are two methods to calculate accelarated depreciation. You are using Double Declining Balance (DDB) method and she is using Sum of the Year Digits Depreciation method. The only reason Sum of the Year Digits Depreciation applies here is because she has mentioned the keyword "useful life left" The formula for Sum of the Years Digits Depreciation is: (Years of useful life left / (10+9+8+7+6+5+4+3+2+1)) x (original cost - salvage value) In year 1, Company depreciation expense using the Sum of the Years Digits method would be: (1 / (10+9+8+7+6+5+4+3+2+1)) x ($1,000- $0) = $181.8 THat is the only other formula I know.

http://beginnersinvest.about.com/od/incomestatementanalysis/a/sum-of-the-years-digitsdepreciation.htm

http://www.pmhub.net/forums/viewtopic.php?f=47&t=14225

http://www.manipalitdubai.com/material/Lecture_Notes/MIT507/Integration_Management_2013.pdf

https://www.dropbox.com/sh/p7gcccbv7oztt4n/2vIC_5L5Vl/Raga/PMP%20%20Raga%20355%20Points.docx

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