A boat,costing $108,000 and uninsured,was wrecked the very first day it was used.It can either be disposed of for $11,000 cash and be replaced with a similar boat costing $110,000,or rebuilt for $98,000 and be brand new as far as operating characteristics and looks are concerned.The total relevant cost of replacing the boat is:

Question

Quizplus · Accepted Answer

If the boat is replaced, the total relevant cost would be the cost of the new boat ($110,000) minus the amount received for the wrecked boat ($11,000) which equals $99,000.
If the boat is rebuilt, the total cost would be $98,000. Thus, the best choice is to rebuild the boat for $98,000 as it is cheaper than replacing it for $99,000.

A Boat,costing $108,000 and Uninsured,was Wrecked the Very First Day