When analyzing the project, sunk costs are not incremental cash outflows.
Anything that has occurred in the past and which should be excluded from relevant cash outflows is referred to as Sunk costs. Thus, only cash flows that arise because of the decision being made should be included in it.
The sunk costs are not included in incremental analysis, as these costs will remain regardless of any decision. Incremental cash flow looks into future costs. So, the accountants has to make sure that sunk costs are not been included in the computation.
Hence, as sunk costs are not incremental, they are relevant to the investment decision.
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