Annual versus cumulative data for replacement decision Because their three adult children have all at last left

Question:

Annual versus cumulative data for replacement decision Because their three adult children have all at last left home, Paul and Cindy Bender recently moved to a smaller house. Paul owns a riding lawnmower he bought three years ago to take care of the former house€™s huge yard; it should last another five years. With the new house€™s smaller yard, Paul thinks he could hire someone to cut his grass for $400 per year. He wonders if this option is financially sound. Relevant information follows.

Riding Lawn Mower Original cost Accumulated depreciation Current market value Estimated salvage value Amount $2,400 900

Required
a. What is the annual opportunity cost of using the riding mower? Based on your computations, recommend whether Paul should sell it and hire a lawn service.
b. Determine the total cost of hiring a lawn service for the next five years. Based on your computations, recommend whether Paul should sell the mower and hire a lawn service.

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...