Managers Are Examining a Possible Replacement of a Machine Decision

question 177

Multiple Choice

Managers are examining a possible replacement of a machine decision and generate the following numbers:
Book value of old machine $1,00,000
Current disposal value of old machine $50,000
Loss on disposal of old machine $300,000
Cost of new machine $600,000
In performing an analysis and in attempt to answer the question, "should we replace the old machine", which of the following statements would be true

• A) the book value of the old machine is relevant
• B) the book value of the old machine and the current disposal value of the old machine are both relevant
• C) the cost of the new machine and the current disposal value of the old machine are relevant
• D) the book value of the old machine and the current disposal value of the old machine are the only relevant items

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Definitions:

Business Operations

Business operations encompass the day-to-day activities a company engages in to run and achieve its objectives, including production, marketing, and management.

Principal

The original sum of money invested or loaned, before interest.

Agents

Individuals or entities authorized to act on behalf of another, typically in business transactions.

Agency Relationship

A legal relationship in which one party, the agent, is authorized to act on behalf of another, the principal, in business transactions with third parties.