Hans has been living in his current apartment in the Helmholtzkiez neighborhood in Berlin for the past 10 years. During that time, he has replaced the coffee maker for €300, has replaced the washing machine for €350, and has had to make miscellaneous repair and maintenance expenditures of approximately €2,000. He has decided to move to the Bergmannkiez neighborhood and rent the apartment for €1,200 per month. Advertising in a real estate agency will cost €100. Hans also wants to paint the interior of the apartment, and this will cost him about €400. The apartment should be ready to rent after that. In reviewing the financial situation, Hans views all the expenditures as being relevant, so he plans to net out the estimated expenditures discussed above from the rental income.

a. Does Hans understand the difference between sunk costs and opportunity costs?
Explain the two concepts to him.

b. Which of the expenditures should be classified as sunk cash flows, and which should be viewed as opportunity cash flows?