In a decision concerning replacing old equipment with new equipment the book value of the old equipment can be considered a sunk cost.

Question

Quizplus · Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered, regardless of future decisions. The book value of old equipment falls under this category as it is the historical cost of the equipment and does not change with current market conditions or future decisions. Therefore, it should not be considered in the decision to replace the old equipment with new equipment.

In a Decision Concerning Replacing Old Equipment with New Equipment