Fuller Industries Is Considering Replacing a Machine That Is Presently

question 120

Multiple Choice

Fuller Industries is considering replacing a machine that is presently used in its production process.Which of the following amounts represents a sunk cost? $\begin{array}{|l|r|r|} \hline& \text { Old Machine } & \begin{array}{c}\text { Replacement } \\\text { Machine }\end{array} \\\hline \text { Original cost } & \$ 60,000 & \$ 46,000 \\\hline \text { Remaining useful life in years } & 5 & 5\\\hline \text { Current age in years } & 5&0 \\\hline \text { Book value } & \$ 33,000 \\\hline \text { Current disposal value in cash } & \$ 9000 & \\\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0 \\\hline \text { Annual cash operating costs } & \$ 8000 & \$ 4500 \\\hline\end{array}$

• A)$60,000
• B)$33,000
• C)$9000
• D)$46,000

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Definitions:

Stockholders' Equity

The owners' residual interest in a corporation's assets after deducting liabilities, often referred to as shareholder equity or owner's equity.

Net Income

The total profit of a company after all expenses have been deducted from revenues, also known as the bottom line.

Investments

Assets purchased with the aim of generating income or appreciating in value over time, such as stocks, bonds, or real estate.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares, though the overall market capitalization remains the same.