The Tattle Teller has a printing press sitting idly in its back room. The press

Question

The Tattle Teller has a printing press sitting idly in its back room. The press has no market value to another printer because the machine utilizes old technology. The firm could get $250 for the press as scrap metal. The press is six years old and originally cost $148,000. The current book value is $2,570. The president of the firm is considering a new project and feels he can use this press for that project. What value, if any, should be assigned to the press as an initial cost of the new project? a)$0 b)$250 c)$2,245 e)$2,495

Explanation / Answer

b)$250

This is because we always consider oppurtunity cost in case value is not available. In the above case firm could get $250 if it is sold as scrap metal. So it would be considered relevant for decision making and press should be assigned value of $250 based on this.

Original Cost should be ignored as it has already been used for 6 Years.

Book value should be ignored since it is irrelevant as market value is different from it.

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