Deadwood Company Is Considering Replacing a Machine That Is Presently

question 17

Multiple Choice

Deadwood Company is considering replacing a machine that is presently used in the production of its product.The following data are available: $$\begin{array} { l r r } & \text { Old Machine } & \begin{array} { r } \text { Replacement } \\\text { Machine }\end{array} \\\text { Original cost } & \$ 99,000 & \$ 88,000 \\\text { Useful life in years } & 9 & 6 \\\text { Current age in years } & 3 & 0 \\\text { Book value } & \$ 33,000 & - \\\text { Disposal value now } & \$ 28,000 & - \\\text { Disposal value in } 5 \text { years } & \$ 1,000 & \$ 6,000 \\\text { Annual cash operating costs } & \$ 17,000 & \$ 14,000\end{array}$$ The _____ is a sunk cost.

• A)annual cash operating costs of the old machine
• B)annual cash operating costs of the replacement machine
• C)disposal value of the old machine
• D)original cost of the old machine

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Definitions:

Marginal Cost

The money required to produce another unit of a product or service.

Public Good

A benefit of goods or services, free of charge to everyone in society, provided by public authorities or private organizations or individuals, without seeking financial gain.

Samuelson's Theory

Refers to Paul Samuelson's economic theories, particularly his contributions to public goods, welfare economics, and consumption theory.

Public Expenditure

Government spending on goods and services, including infrastructure projects, healthcare, and education, intended for the public's benefit.