Stranded costs

Okay, so imagine you have a lemonade stand. You spent some money buying lemons, sugar, cups, and a sign. You also paid for a machine to make the lemonade. But one day, nobody wants to buy lemonade anymore because they started drinking orange juice instead.

Now, you have a big problem. You already spent money on things that you can’t use anymore because nobody wants your lemonade. These costs are called stranded costs.

Companies can have stranded costs too. Let’s say a company built a power plant that runs on coal. But new laws were made, and it’s not allowed to use coal anymore because it makes the air dirty. Now, the company is stuck with a power plant they can’t use, and they can’t get their money back. These are stranded costs.

It’s like when you buy something that you can’t use anymore, and you can’t get your money back. So, stranded costs happen when companies spend money on something that they can’t use anymore and can’t sell to get their money back.