The purchase price of a certain new automobile (challenger) being considered for
ID: 1110056 • Letter: T
Question
The purchase price of a certain new automobile (challenger) being considered for use in your business is $22,000. Your firm’s present automobile (defender) can be sold on the open market for $8,000. The defender was purchased with cash three years ago, and its current BV is $11,000. To make the defender comparable in continued service to the challenger, your firm would need to make some repairs at an estimated cost of $1,500.
Based on this information, what is the total capital investment in the defender, using the outsider viewpoint? Please only fill in the number of the calculated result.
Explanation / Answer
As an outsider I would be looking at the defender which is available for sale at $8,000. I would be observing that there is an additional cost of $1,500 for repairing. Here's the total capital investment in the defender which is $9,500
Hence the total capital investment in the defender is $9,500.
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