Smith Industries Is Considering Replacing a Machine That Is Presently

question 118

Multiple Choice

Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available:
$$\begin{array} { | l | r | r | } \hline& \text { Old Machine } &{ \begin{array} { c } \text { Replacement } \\\text { Machine }\end{array} } \\ \hline \text { Original cost } & \$ 45,000 & \$ 35,000 \\\hline \text { Remaining useful life in years } & 5 & 5 \\\hline \text { Current age in years } & 5 &0 \\\hline \text { Book value } & \$ 25,000 & \\\hline \text { Current disposal value in cash } & \$ 8,000 & \\\hline \text { Future disposal value in cash (in 5 years) } & \$0 & \$0\\\hline \text { Annual cash operating costs } & \$7,000&\$4,000 \\\hline\end{array}$$

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For a machine replacement decision which of the information provided in the table is a sunk cost?

• A) The original cost of the old machine
• B) The current disposal value of the old machine
• C) The current annual operating cost of the old machine
• D) The price of the new machine

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