Smith Industries is considering replacing a machine that is presently used in its production process.The following information is available:
$$\begin{array} { | l | r | r | }
\hline& { \text { Old machine } } & { \begin{array} { c }
\text { Replacement } \
\text { machine }
\end{array} } \
\hline \text { Original cost } & \$ 45000 & \$ 35000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0\
\hline \text { Book value } & \$ 25000 & \
\hline \text { Current disposal value in cash } & \$ 8000 & \
\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0\
\hline \text { Annual cash operating costs } & \$ 7000 &\$ 4000 \
\hline
\end{array}$$
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:
$$\begin{array} { | l | r | r | } 
\hline& { \text { Old machine } } &  { \begin{array} { c } 
\text { Replacement } \
\text { machine } 
\end{array} } \
\hline \text { Original cost } & \$ 45000 & \$ 35000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0\
\hline \text { Book value } & \$ 25000 & \
\hline \text { Current disposal value in cash } & \$ 8000 &  \
\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 &  \$ 0\ 
\hline \text { Annual cash operating costs } & \$ 7000 &\$ 4000 \
\hline
\end{array}$$
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