Jarett Motors is trying to decide whether it should keep its existing car washing machine or purchase a new one that has technological advantages (which translate into cost savings) over the existing machine. Information on each machine follows: Old machine New machine Original cost $9,000 $20,000 Accumulated depreciation 5,000 0 Annual cash operating costs 9,000 4,000 Current salvage value of old machine 2,000 Salvage value in 10 years 500 1,000 Remaining life 10 yrs 10 yrs Refer to Jarett Motors. The $4,000 of annual operating costs that are common to both the old and the new machine are an example of a(n) Select one: a. opportunity cost b. future avoidable cost c. sunk cost d. irrelevant cost
Jarett Motors is trying to decide whether it should keep its existing car washing machine or purchase a new one that has technological advantages (which translate into cost savings) over the existing machine. Information on each machine follows: Old machine New machine Original cost $9,000 $20,000 Accumulated depreciation 5,000 0 Annual cash operating costs 9,000 4,000 Current salvage value of old machine 2,000 Salvage value in 10 years 500 1,000 Remaining life 10 yrs 10 yrs Refer to Jarett Motors. The $4,000 of annual operating costs that are common to both the old and the new machine are an example of a(n) Select one: a. opportunity cost b. future avoidable cost c. sunk cost d. irrelevant cost
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Jarett Motors is trying to decide whether it should keep its existing car washing machine or purchase a new one that has technological advantages (which translate into cost savings) over the existing machine. Information on each machine follows:
| Old machine | New machine | |
|---|---|---|
| Original cost | $9,000 | $20,000 |
| 5,000 | 0 | |
| Annual cash operating costs | 9,000 | 4,000 |
| Current salvage value of old machine | 2,000 | |
| Salvage value in 10 years | 500 | 1,000 |
| Remaining life | 10 yrs | 10 yrs |
Refer to Jarett Motors. The $4,000 of annual operating costs that are common to both the old and the new machine are an example of a(n)
Select one:
a. opportunity cost
b. future avoidable cost
c. sunk cost
d. irrelevant cost
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