7. (5 pts) A company bought production equipment 2 years ago for $45,000. The eq

Question

7. (5 pts) A company bought production equipment 2 years ago for $45,000. The equipment was expected to last for years and the salvage value was estimated to be $6,000 at the end of its useful life. The equipment did not perform satisfactorily and the company spent $15,000 a year ago to upgrade. It is recommended by the plant engineer that the equipment be either upgraded now for another S15,000 or replaced with equipment now. If the equipment is replaced now, it can be sold for $10,000. In conducting a replacement analysis, the cost of the defender to be used is equal to: (5 pts) (A) S45,000 (B) S10,000 (C) S21,000 (D) $15,000

Explanation / Answer

The first cost of the defender is always its current market value which is 10000 not the book value.

Option b. is correct

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