30. Six years ago, Alex Industries paid cash for a new milling machine that cost

Question

30. Six years ago, Alex Industries paid cash for a new milling machine that cost $60,000. Three years ago, the firm spent $7,100 on repairs and modifications to the machine. The machine is now fully depreciated and has just sat idly in a back corner of the shop for the past 18 months. The estimated value of the machine today is $14,400. The firm is considering using this machine in a new project. If it does so, what value should be assigned to this machine and included in the initial costs of the project? Answer Tolerance: ± $ 125

Explanation / Answer

In project evaluation all the relevant and oppurtunity costs must be considered. Irrelevant costs and sunk costs should not be considered. Estimated value today is oppurtunity cost so that alone should be considered.

Hece, intial costs of the project is -$14,400.

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