Smith Industries Is Considering Replacing a Machine That Is Presently

question 11

Multiple Choice

Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available: $$\begin{array} { | l | r | r | } \hline & \text { Old Machine } & { \begin{array} { c } \text { Replacement } \\\text { Machine }\end{array} } \\\hline \text { Original cost } & \$ 55,000 & \$ 45,000 \\\hline \text { Remaining useful life in years } & 3 & 3 \\\hline \text { Current age in years } & 3 & 0 \\\hline \text { Book value } & \$ 33,000 & \\\hline \text { Current disposal value in cash } & \$ 9,000 & \\\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0 \\\hline \text { Annual cash operating costs } & 8,500 & \$ 3,500\\\hline\end{array}$$
Which of the following amounts represent a sunk cost?

• A) $55,000
• B) $33,000
• C) $9,000
• D) $45,000

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Definitions:

Technological Dependency

Reliance on technology to perform daily activities or business operations, which can increase vulnerability to technological failures or cyber threats.

Investment Account

An account held at a financial institution or brokerage that is used to hold securities, stocks, bonds, and other investments.

Dividend Receivable

The amount of declared dividends owed to shareholders but not yet paid out by the company.

Equity in Investee Income

The portion of income attributed to a parent company from its investment in another company, based on the parent's ownership percentage.