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The Tinka Toy Company has a large inventory of a specific type of toy which is deemed to be obsolete and, thus, unsaleable at its

The Tinka Toy Company has a large inventory of a specific type of toy which is deemed to be obsolete and, thus, unsaleable at its current prices. The recorded value of this inventory is $50,000. Tinka may either modify the toys at an additional cost of $35,000 or sell them to a competitor in their current state for $5,000. The costs of modification include the cost of purchasing new equipment of $10,000, which could be sold after the toy modification for $5,000. If Tinka modifies the toys, the total expected revenue would be $40,000. Should Tinka sell the toys in their present state or modify them? Identify any incremental costs, incremental revenues, and sunk costs, which exist.

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