44.0k views
4 votes
Breezy Company is considering the replacement of equipment that has a current book value of $450,000. Breezy has an opportunity to sell the equipment for $350,000. The cost of replacing the old equipment with a new machine is $410,000. The cost of operating the new equipment is $64,000 per year less than the cost of operating the old equipment. The new equipment has a 5-year useful life. The amount of the sunk cost for this replacement decision is

1 Answer

2 votes

Answer:

$450,000

Step-by-step explanation:

Sunk costs are costs that have already been incurred and are thus irrelevant in decision making.

The Book Value of $450,000 is a sunk cost because the costs have already been incurred.

User Marko Ivkovic
by
8.3k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.