Brooklyn Bakers Brooklyn Bakers is trying to decide whether it should keep its existing bread-making machine or purchase a new one that has technological advantages (which translate into cost savings) over the existing machine. Information on each machine follows:
Refer to Brooklyn Bakers. The estimated $650 salvage value of the existing machine in 10 years represents a(n)
A) sunk cost.
B) opportunity cost of selling the existing machine now.
C) opportunity cost of keeping the existing machine for 10 years.
D) opportunity cost of keeping the existing machine and buying the new machine.

Question

Brooklyn Bakers Brooklyn Bakers is trying to decide whether it should keep its existing bread-making machine or purchase a new one that has technological advantages (which translate into cost savings) over the existing machine. Information on each machine follows:
 Refer to Brooklyn Bakers. The estimated $650 salvage value of the existing machine in 10 years represents a(n)
A) sunk cost. 
B) opportunity cost of selling the existing machine now. 
C) opportunity cost of keeping the existing machine for 10 years. 
D) opportunity cost of keeping the existing machine and buying the new machine.

Quizplus · Accepted Answer

The estimated salvage value of the existing machine is not relevant to the decision of whether to keep or replace the machine. It is a sunk cost, meaning a cost that has already been incurred and cannot be recovered. Therefore, the best choice is to sell the machine now and purchase the new machine, taking advantage of the technological advantages and cost savings.

Brooklyn Bakers Brooklyn Bakers Is Trying to Decide Whether It