[sheetal0202]

A colleague argues that the resource a firm owns already should not be considered in investment analysis . Do you agree

[manik chand dey]

In investment analysis, one does not required to consider sunk costs which has already been incurred by the firm. For example though preliminary expenditure to start a firm is a resource owned by the firm, should not be considered, rather to be written off over the reasonable period. as it is a sunk cost.

On the other hand, existing assets (for ex: machinery in workable condition) which have a revenue generating potential for the firm should be considered while analysing any new investment opportunities because cash flows from the new opportunity might get affected by the cash flow from existing assets(resources owned by the firm).