Wilbert's, Inc. paid $90,000, in cash, for a piece of equipment three years ago. Last year, the company spent $10,000 to update the equipment with the latest technology. The company no
Longer uses this equipment in their current operations and has received an offer of $50,000 from a
ﬁrm who would like to purchase it. Wilbert's is debating whether to sell the equipment or to expand
Their operations such that the equipment can be used. When evaluating the expansion option, what
Value, if any, should Wilbert's assign to this equipment as an initial cost of the project?

Question

Quizplus · Accepted Answer

The initial cost of the project should be the opportunity cost, which is the amount Wilbert's could receive if they sell the equipment, i.e., $50,000.