Webster & Moore paid $139,000, in cash, for a piece of equipment 3 years ago. At

Question

Webster & Moore paid $139,000, in cash, for a piece of equipment 3 years ago. At the beginning of last year, the company spent $21,000 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 $89,000 from a firm that would like to purchase it. Webster & Moore is debating whether to sell the equipment or to expand its operations so that the equipment can be used. When evaluating the expansion option, what value, if any, should the firm assign to this equipment as an initial cost of the project?

Please explain...

Answer
Selected Answer:
$89,000

Explanation / Answer

The current value of equipment = $89,000 If the company decides to expand the operations, the opportunity cost = $89,000 The company will forgo this amount if it expands the operations. hence $89,000 is the initial cost of the project.

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