(Relevant vs. sunk costs) Your roommate, Sara Canfield, purchased a new cordless telephone just before this school term for $70. Shortly after the se¬ mester began, Sara’s phone was crushed by an errant “flying plant” during a party at her apartment. Returning the equipment to her retailer, Sara was in¬ formed that the estimated cost of repairs was $55 because the damage was not covered by the manufacturer’s warranty.

Pondering the figures, Sara was ready to decide to make repairs; after all, she had recently paid $70 for the equipment. However, before making a decision, Sara asked for your advice.

a. Using concepts from this chapter, prepare a brief presentation outlining factors that Sara should consider in making her decision.

b. Continue the presentation in part

(a) by discussing the options Sara should consider in making her decision. Start by defining a base case against which alternatives can be compared.

LO.1