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 estimated $500 salvage value of the existing machine in 10 years represents a(n) Select one: a. opportunity cost of keeping the existing machine for 10 years b. opportunity cost of keeping the existing machine and buying the new machine c. opportunity cost of selling the existing machine now d. sunk 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 estimated $500 salvage value of the existing machine in 10 years represents a(n) Select one: a. opportunity cost of keeping the existing machine for 10 years b. opportunity cost of keeping the existing machine and buying the new machine c. opportunity cost of selling the existing machine now d. sunk 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 estimated $500 salvage value of the existing machine in 10 years represents a(n)
Select one:
a. opportunity cost of keeping the existing machine for 10 years
b. opportunity cost of keeping the existing machine and buying the new machine
c. opportunity cost of selling the existing machine now
d. sunk cost
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