Tony Company is considering replacing a machine that is presently used in the production of its product. The following data are available: $\begin{array}{lll}&& \text { Replacement } \
&\text { Old Machine } & \text { Machine }\
\text { Original cost } & \$ 295,000 & \$ 188,000 \
\text { Useful lif e in years } & 11 & 5 \
\text { Current age in years } & 6 & 0 \
\text { Book value } & \$ 130,000 & - \
\text { Disposal value now } & \$ 52,000 & - \
\text { Disposal value in 5 years } & 0 & 0 \
\text { Annual cash op erating } & \$ 39,000 & \$ 24,000\\text {costs}
\end{array}$ is irrelevant.
A) The disposal value of the old machine
B) The book value of the old machine
C) The annual operating cost of the old machine
D) The original cost of the replacement machine

Question

Quizplus · Accepted Answer

The book value of the old machine is a sunk cost and does not affect the decision to replace it.

Tony Company Is Considering Replacing a Machine That Is Presently