1 Nathan T Corporation is comparing tow different options. Nathan T currently us

Question

1 Nathan T Corporation is comparing tow different options. Nathan T currently uses Option 1, with revenues of $65,000 per year; maintenance expenses of $5,000 per year; and operating expenses of $26,000 per year; Option 2 provides revenues of $60,000 per year; maintenance expenses of $5,000 per year, and operating expenses of $22,000 per year; Option 1 employs a piece of equipment which was upgraded 2 years ago at a cost of $17,000. If Option 2 is chosen, it will free up resources that will bring in an additional $4,000 of revenue. Complete the following table to show the change in income from choosing Option 2 versus Option 1. Designate Sunk costs with an “S”.

Explanation / Answer

Option 1 Option 2 Net Income Sunk Increase/ (Decrease) Revenues 65000 60000 5000 Maintenance 5000 5000 "S" Expenses Operating Expenses 26000 22000 4000 Equipment Upgrade 17000 Opportunity (9000) 9000

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