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At the beginning of year 1, Frederick Remembers, who is semi-retired, purchases a used, special purpose vehicle to run a business that is based on
At the beginning of year 1, Frederick Remembers, who is semi-retired, purchases a used, special purpose vehicle to run a business that is based on taking customers out on one day tours in the Lethbridge area during the three month summer period. The vehicle was expected to have a five year life, at which time it would be worth nothing. Fred paid $50,000 for the vehicle. It is now the end of year 4 and Fred's's budgeted income statement for year 5 is as follows: Sales $50,000 Variable costs 43.000 Contribution margin 7,000 Depreciation 10.000 Operating Profit ($3,000) Dismayed by this projection, Fred considers his options. He could sell the vehicle for $2,000 now (it has considerable wear and tear) and believes he could earn $4,000 doing odd jobs over the next summer if he closed shop and went out of business. Based solely on financial considerations, should Fred continue operating his business for the fifth and final year OR should he sell the vehicle now for $2,000 and go out of business and do odd jobs for $4,000? Choose the most accurate answer. Select one: O sell the vehicle now as Fred will be $5,000 further ahead than if he kept the business. O Continue operating the business as Fred will be $7,000 further ahead than if he sold now. O Sell the vehicle now as Fred will be $6,000 further ahead than if he kept the business O Continue operating the business as Fred will be $1,000 further ahead than if he sold now O Sell the vehicle now as Fred will be $3,000 further ahead than if he kept the business
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