Question

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

Answer 1

$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.