Expanded:
Investment, refers to the process by which a state or a company, as well as an individual, enters into an agreement with the other party for a specific purpose, to promote social development, to achieve mutual benefit, and to channel funds. It is also the economic behavior of a particular economic entity to invest a sufficient amount of money or the monetary equivalent of physical goods into a certain field for a certain period of time in order to obtain a return or increase the value of the funds in a foreseeable future period. It can be categorized into physical investment, capital investment and securities investment.
Sunk costs, refers to the costs incurred in the past, but not related to the current decision. From the point of view of decision-making, the costs incurred in the past are only a factor that contributes to the current state of affairs, and the current decision-making takes into account the costs that may be incurred in the future and the benefits that they bring, regardless of the costs that have been incurred in the past.
For a business, sunk costs are expenditures that have been paid in cash by the business in previous operating activities and amortized into costs and expenses during the operating period. Thus, fixed assets, intangible assets, deferred assets, etc. are sunk costs for a business.
In terms of traceability of costs, sunk costs can be direct costs or indirect costs. If sunk costs can be traced back to individual products or departments, they are direct costs; if they are caused by several products or departments **** the same, they are indirect costs.
From the point of view of the form of costs, sunk costs can be fixed costs or variable costs. When a company abolishes a department or stops the production of a certain product, the sunk costs usually include both fixed costs such as machinery and equipment, as well as raw materials, components and other variable costs. Usually, fixed costs are more likely to be sunk than variable costs.
From a quantitative point of view, sunk costs can be total costs or partial costs. For example, machinery and equipment abandoned in the middle of the day, if it can be sold to sell to get part of the value, then its book value will not be completely sunk, only the part of the realization of the value of less than the book value of the sunk cost.
Generally speaking, the more liquid, versatile and compatible an asset is, the less it will be sunk. The concept of "cash is king" can also be understood from this perspective. Fixed assets, research and development, and specialized assets are easy to sink, and the division of labor and specialization often corresponds to a certain sunk cost.