1. 1. Assume a company has equipment with a book value of $50,000. The Company can sell the equipment through a broker for $90,000 less a 4% commission fee. Alternatively, the Company could lease the equipment to another party for 3 years at a price of $130,000. At the end of the three years, the equipment is expected to have no residual value (book value of $0). If the equipment is leased, the Company will incur total estimated expenses of $12,000 for the three years for maintenance, insurance and taxes.

   What is the differential net income?

   $31,600

   $86,400

   $40,000

   $12,000

2. 2.A company manufactures a product (A) for a total production cost of $13,000, which can be sold for $50,000. The company has the option to process this product further to create product B for anadditionalcost of $10,000. Product B can be sold for $58,000. What is thedifferential costbetween these two options?

3. 		$37,000
   		$8,000
   		$10,000
   		$2,000

3.

Which of the following statements best describes sunk costs

They are costs that do not differ among competing alternatives.

They represent a benefit forgone as a result of selecting one alternative over another.

They are costs that occurred in the past and cannot be changed.

They are future coststhatdiffer among competing alternatives.

4.

Which of the following costs arenotrelevant when preparing a differential analysis?

costs that differ between two competing options

sunk costs

benefits given up by selecting one option over another

salvage value

5.

1. Opportunity costs canbestbe defined as

   		any benefit given up by selecting one alternative over another.
   		costs that do not differ between two alternatives.
   		costs that have occurred in the past and cannot be changed.
   		additional coststhatwill need to be paid in order to dispose of equipment.