30 Youngers Inc. paid $95,000, in cash, for a piece of equipment three years ago

Question

30

Youngers Inc. paid $95,000, in cash, for a piece of equipment three years ago. Last year, the company spent $15,000 to update the equipment with the latest technology. The company no longer uses this equipment in its current operations and has received an offer of $80,000 from a firm who would like to purchase it. Youngers is debating whether to sell the equipment or to expand its operations such that the equipment can be used. When evaluating the expansion option, what value, if any, should Youngers assign to this equipment as an initial cost of the project?

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Option B (80000) is the correct answer.

Explanation:

The current sales value would be taken as the cost. It is so because the company is not using the equipment in the current operations (so its initial cost has no relevance. Also, the value of repairs would be treated as a sunk cost, since it has already been incurred and carries no relevance in today's, scenario.

Thanks.

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