Question
Management of Modugno Corporation is considering whether to purchase a new model 370 machine costing $463,500 or a new model 240 machine costing $409,500 to
Management of Modugno Corporation is considering whether to purchase a new model 370 machine costing $463,500 or a new model 240 machine costing $409,500 to replace a machine that was purchased 7 years ago for $451,500. The old machine was used to make product M25A until it broke down last week. Unfortunately, the old machine cannot be repaired. |
Management has decided to buy the new model 240 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product M25A. |
Management also considered, but rejected, the alternative of simply dropping product M25A. If that were done, instead of investing $409,500 in the new machine, the money could be invested in a project that would return a total of $452,500. |
In making the decision to buy the model 240 machine rather than the model 370 machine, the sunk cost was: |
Multiple Choice
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$409,500
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$463,500
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$451,500
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$452,500
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