An increase in the value of a sunk cost should have which effect on investment appraisal calculations?

An increase in the value of a sunk cost should have no effect on investment appraisal calculations. Sunk costs are expenditures that have already been incurred and cannot be recovered, regardless of whether a new project is undertaken. They are historical costs and are irrelevant to future decision-making. Investment appraisal techniques, such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period, focus exclusively on future, incremental cash flows that will change as a direct result of the investment decision.

• Lengthen the payback period (A), Reduce the NPV (B), or Increase the NPV (C) are incorrect because including sunk costs in these calculations would lead to an inaccurate assessment of the project's true financial viability. Sunk costs should be ignored to ensure that decisions are based solely on the future costs and benefits that are relevant to the investment choice.