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 $15,000 and that he can sell it for $19,000. When he has spent $14,000, he discovers he needs to replace the engine, which will cost $5000. He can sell the car without the new engine for $16,000. What should Stan do?
A) He should complete the repairs and sell the car for $19,000.
B) He should sell the car now for $16,000.
C) He should keep the car for his own use because selling it would be a loss.
D) He should be totally indifferent between finishing the project and selling the car now.

Question

Quizplus · Accepted Answer

Stan originally planned to spend $15,000 on the car and repairs and sell it for $19,000. However, when he discovered that he needed to spend an additional $5,000 on a new engine, his total cost would be $19,000 ($15,000 + $5,000). If he sold the car with the new engine for $19,000, he would break even, which means he would not make any profit. On the other hand, he can still sell the car without the new engine for $16,000 and recover most of his expenses. Therefore, it is more advantageous for Stan to sell the car now for $16,000 rather than investing an additional $5,000 for a new engine and not making a profit. Thus, option B is the best choice.

Stan Buys a 1966 Mustang, Which He Plans to Restore