A Corporation Has Been Steadily Losing Money on One of Its

question 45

Multiple Choice

A corporation has been steadily losing money on one of its product lines. The factory used to produce that brand cost R20 million to build 10 years ago. The firm now is considering an offer to buy that factory for R15 million. Which of the following statements about the decision to sell or not to sell is correct?

• A) The firm should turn down the purchase offer because the factory cost more than R15 million to build.
• B) The R20 million spent on the factory is a sunk cost that should not affect the decision.
• C) The R20 million spent on the factory is an implicit cost, which should be included in the decision.
• D) The firm should sell the factory only if it can reduce its costs elsewhere by R5 million.

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Definitions:

Temperate Rain Forest

Forests in temperate regions that receive high rainfall, characterized by a high density of coniferous or broadleaf trees.

Tropical Rain Forest

A hot, moist biome found near Earth's equator, known for its dense canopy of biodiversity.

Shortgrass Prairie

A grassland ecosystem characterized by the dominance of shortgrass species, adapted to arid conditions and grazing pressure, found in the central United States and other parts of the world.

Temperate Grassland

A grassland characterized by hot summers, cold winters, and less rainfall than is found in a temperate deciduous forest biome.