Accounts Uncollectible

Finance allah shmoop What are sunk costs Mother sunk there

gone There been no money back guarantee kind of costs

Gold diggers No different kind of gold digger Real ones

heading to a far off land in a politically unstable

country Where this week you happen to believe that american

relationships with whatever stand will be Oh just great forever

You spend fifty million bucks shipping tractors trucks granola bars

anti diarrheal medicine hard hats and twenty thousand of those

little pan thing is that you you know paying for

golden You know those All right Well you just start

digging and well there's a coup and the prime minister

of whatever stand is overthrown by rebels and you have

to leave or die What to do what to do

what to do Well so yep That's Fifty billion bucks

sunk Gone No money back Cia Fifty mil Those dollars

sunk But some costs aren't just about costs that were

you know gone and never to be gotten back They

also relate to project started where you can't get your

initial outlay back Like when a large corporation are twelve

Newly minted mba is for their corporate finance department And

nine get fired within the first two years Could you

have saved a million box and just hired the three

Good ones instead No why Because you never know who

the good ones will be in advance until they've been

you know tested on the field of financial battle the

nine fails or a sunk cost of the business You

can also think about typical sunk costs as revolving around

the decision whether you should continue to produce a product

like when you're managing a company you really need to

ignore sunk costs For example think about our little lemonade

stand prototype Here we use the best granite and reclaimed

wood and we're selling lemonade for a buck a glass

and are variable costs or in fifteen cents give or

take We spent a million dollars on a lemonade stand

Is that million dollars considered when we decide whether or

not we gotta work tomorrow We'll know it's a sunk

cost or nothing we can do about it It doesn't

affect whether we go to work tomorrow or not side

in fact pair so sunk costs are costs which big

boys and big girls know are never recoup a ble

there indem it parts of doing business as capital is

risked on ventures that may or may not have positive

Payback But hopefully your payback is better than the payback 00:02:26.313 --> [endTime] because this guy got