Question
Carp Corporation is considering whether to replace a machine that was purchased 10 years ago for $439,000. This machine was used to make product ABI
Carp Corporation is considering whether to replace a machine that was purchased 10 years ago for $439,000. This machine was used to make product ABI until it broke down last week. They have the option to purchase either Model Z64 machine costing $464,000 or a Model Y87 costing $405,000.
Management has decided to buy Model Y87. It has less capacity than the Model Z64 but its capacity is sufficient to continue making product ABI.
Management also considered, but rejected, the alternative of simply dropping product ABI. If that were done, instead of investing $405,000 in the new machine, the money could be invested in a project that would return a total of $456,000.
In making the decision to buy Model Y87 instead of Model Z64, the sunk cost was:
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