Question 6

The machine your firm currently uses produces a unit of good at a cost of $5 per unit and a profit per unit of $3. You can sell the current machine for $4,500.

A new machine can produce a unit of good at a cost of $2 per unit and a profit of $6. The new machine costs $10,000.

In the capital budgeting analysis (NPV) the cash-flows of switching to the new machine

Group of answer choices

Should include the $4,500 value of the current machine since this is an opportunity cost.

Should only include the incremental cost of $5,500 ($10,000 - $4,500)

Should NOT include the $4,500 value of the current machine since this is a sunk cost.