Scenario 15.7: Consider the Following Information

question 4

Multiple Choice

Scenario 15.7:
Consider the following information:
You move to northern California and buy a winery that already holds a stock of some wine in barrels. You are deciding whether to sell the wine now, or keep it until next year. The current price of wine is $20 per bottle, and it costs $2 per bottle to get the wine from barrels to bottles.
-Based on the information in Scenario 15.7. You should:

• A) keep the wine in barrels.
• B) sell the wine now, to get $18 per bottle in profit.
• C) keep the wine unless you expect the price to fall below $18 per bottle.
• D) keep the wine unless you expect the price to rise above $22 per bottle.
• E) not do anything until you find out what the interest rate is.

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Definitions:

Fully Depreciated

The status of an asset after its cost has been completely written off over its useful life.

Accumulated Depreciation

The total amount of a tangible asset's cost that has been allocated as depreciation expense since the asset was put into use.

Equipment

Tangible assets used in the operation of a business to produce goods or provide services, not intended for sale.

Revenue Expenditure

Costs that are expensed in the income statement in the period in which they are incurred, typically related to the day-to-day operating expenses.