Chung Inc.is considering the replacement of a piece of equipment with a newer model.The following data has been collected: $\begin{array}{lrr}&\text { Old Equipment }&\text { New Equipment }\
\text { Purchase price } & \$ 225,000 & \$ 375,000 \
\text { Accumulated depreciation } & 90,000 & -0- \
\text { Annual operating costs } & 300,000 & 240,000
\end{array}$ If the old equipment is replaced now, it can be sold for $60,000.Both the old equipment's remaining useful life and the new equipment's useful life is 5 years.
-Which of the following amounts is irrelevant to the replacement decision?

Question

Chung Inc.is considering the replacement of a piece of equipment with a newer model.The following data has been collected: $\begin{array}{lrr}&\text { Old Equipment }&\text { New Equipment }\
\text { Purchase price } & \$ 225,000 & \$ 375,000 \
\text { Accumulated depreciation } & 90,000 & -0- \
\text { Annual operating costs } & 300,000 & 240,000
\end{array}$ If the old equipment is replaced now, it can be sold for $60,000.Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. 
-Which of the following amounts is irrelevant to the replacement decision?

Quizplus · Accepted Answer

The accumulated depreciation of $135,000 is a sunk cost and does not affect the decision to replace the equipment.

Chung Incis Considering the Replacement of a Piece of Equipment with with a Newer