TEK, Inc., is considering whether to replace a production machine with a newer model of the same machine. If TEK keeps the old machine, the trade-in value of the old equipment is an example of a(n)
A)sunk cost.
B)opportunity cost.
C)avoidable cost.
D)imputed cost.

Question

Quizplus · Accepted Answer

The trade-in value of the old equipment represents the opportunity cost of not replacing the machine. If TEK keeps the old machine, they are forgoing the opportunity to receive the trade-in value. Therefore, it is an example of an opportunity cost.

TEK, Inc, Is Considering Whether to Replace a Production Machine with with a Newer