Sunk costs and opportunity costs Covol Industries is developing the relevant cas

Question

Sunk costs and opportunity costs Covol Industries is developing the relevant cash flows associated with the proposed replacement of an existing machine tool with a new, technologically advanced one. Given the following costs related to the proposed project, explain whether each would be treated as a sunk cost or an opportunity cost in developing the relevant cash flows associated with the proposed replacement decision.

a. Covol would be able to use the same tooling, which had a book value of $40,000, on the new machine tool as it had used on the old one. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /?>

b. Covol would be able to use its existing computer system to develop programs for operating the new machine tool. The old machine tool did not require these programs. Although the firm

Explanation / Answer

a-sunk cost b-opportunity cost

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