Must show work to get points! Pace Corporation in Cookeville, Tennessee bought p
ID: 1100744 • Letter: M
Question
Must show work to get points!
Pace Corporation in Cookeville, Tennessee bought production equipment 2 years ago for $38,000. The equipment was expected to last for 5 years and the salvage value was estimated to be $4,000 at the end of its useful life. Unfortunately, the equipment did not perform satisfactorily and the company spent $15,000 a year ago. It is recommended by the plant engineer that the equipment be either upgraded now for another $12,000 or replaced with equipment now. If the equipment is replaced now, it can be sold for $8,000. In conducting a replacement analysis, the cost of the defender to be used is equal to ________________.
$35,000
$38,000
$8,000
$27,000
A.$35,000
B.$38,000
C.$8,000
D.$27,000
Explanation / Answer
Answer: c. $8,000
Since the earlier costs are sunk costs.
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