Question
Birch plc is considering a new project that will require the use of equipment which is already held and which has a carrying value in
Birch plc is considering a new project that will require the use of equipment which is already held and which has a carrying value in the financial statements of
250,000.
If the project is not undertaken, the equipment may be sold for
180,000
or used for another project. If it is used for another project, Birch plc will avoid having to acquire further equipment costing
240,000.
To make the existing equipment suitable for the other project, however, some modifications costing
10,000
to the equipment will have to be carried out.
What is the relevant cost of the equipment to be used when calculating the net present value of the new project?
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