Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available: $$\begin{array} { | l | r | r | }
\hline & \text { Old Machine } & { \begin{array} { c }
\text { Replacement } \
\text { Machine }
\end{array} } \
\hline \text { Original cost } & \$ 45,000 & \$ 35,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0 \
\hline \text { Book value } & \$ 25,000 & \
\hline \text { Current disposal value in cash } & \$ 8,000 & \
\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0 \
\hline \text { Annual cash operating costs } & \$ 7,000 &\$4,000 \
\hline
\end{array}$$ Which of the information provided in the table is irrelevant to the replacement decision?

Question

Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available: $$\begin{array} { | l | r | r | } 
\hline & \text { Old Machine } & { \begin{array} { c } 
\text { Replacement } \
\text { Machine }
\end{array} } \
\hline \text { Original cost } & \$ 45,000 & \$ 35,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0 \
\hline \text { Book value } & \$ 25,000 & \
\hline \text { Current disposal value in cash } & \$ 8,000 & \
\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0 \
\hline \text { Annual cash operating costs } & \$ 7,000 &\$4,000 \
\hline
\end{array}$$ Which of the information provided in the table is irrelevant to the replacement decision?

Quizplus · Accepted Answer

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

Smith Industries Is Considering Replacing a Machine That Is Presently