Stan buys a 1966 Mustang, which he plans to restore and sell. He anticipates that the cost of the car and the repairs will be $8,000 and that he can sell it for $10,000. When he has spent $7,000, he discovers he needs to replace the engine, which will cost $4,000. He can sell the car without the new engine for $9,000. What should Stan do?

Question

Quizplus · Accepted Answer

Stan's original plan was to spend $8,000 and sell the car for $10,000, making a profit of $2,000. However, unexpected costs have come up in the form of a needed engine replacement, costing $4,000.

If Stan were to complete the repairs, his total cost for the car and repairs would be $11,000 ($8,000 + $4,000 - $1,000 already spent), and he could sell it for $10,000. This means he would lose $1,000 on the project (selling for $1,000 less than he put into it).

On the other hand, if Stan were to sell the car as-is for $9,000, he would have spent a total of $8,000 ($7,000 already spent + $1,000 loss), breaking even on the project.

Therefore, the best choice for Stan is to cut his losses and sell the car as-is for $9,000.

Stan Buys a 1966 Mustang, Which He Plans to Restore