1. Granfield Company has a piece of manufacturing equipment with a book value of $44,500 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $22,900. Granfield can purchase a new machine for $129,000 and receive $22,900 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $19,900 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

Multiple Choice

$26,500 increase

$79,600 decrease

$21,600 decrease

$55,150 increase

$26,500 decrease

2.

An opportunity cost:

Multiple Choice

Is an unavoidable cost because it remains the same regardless of the alternative chosen.

Requires a current outlay of cash.

Results from past managerial decisions.

Is the potential benefit lost by choosing a specific alternative course of action among two or more.

Is irrelevant in decision making because it occurred in the past.