Question

50 POINTS

5. Henry has spent $6,450 purchasing and repairing an old car that he expects to sell for $8,900 once the repairs are complete. Assume that his prediction is very accurate and he will be able to sell it for that price, no higher and no lower than $8,900. However, he discovers that he needs additional parts, which will cost $2,850, including labor, in order to complete the additional repairs. As a consequence, he can sell the car as it is now for only $5,800. What should Henry do?
A. Henry should complete the repairs and sell the car for $8,900.
B. Henry should cut his losses and take the $5,800.
C. Henry should do neither. He will make a loss either way.
D. It doesn't matter which action Henry takes, they are equivalent.
E. This question is ridiculous because Henry should have never purchased the old car since he should know that repairing cars will always cause a loss.

Answer 1

C)

Explanation:

Cost of purchasing and repairing = 6450

Cost of additional repairs = 2850

Total = 6450 + 2850 = 9300

If he sells the car without carrying out the additional repairs, he will make a loss of: 6450 - 5800 = $650

If he completes the additional repairs and sells for $8,900, he will make a loss of: 9300 - 8900 = $400

He will make a loss either way , therefore option C)