Answer the Following Questions Using the Information Below:
Frederick Company

question 160

Multiple Choice

Answer the following questions using the information below:
Frederick Company is considering replacing a machine.The following data are available:
$\begin{array}{lrr}&& \text { Replacement } \\&\text { Old Machine } & \text { Machine }\\\text { Original cost } & \$ 45000 & \$ 35000 \\\text { Useful life in years } & 10 & 5 \\\text { Current age in years } & 5 & 0 \\\text { Book value } & \$ 25000 & - \\\text { Disposal value now } & \$ 6000 & - \\\text { Disposal value in 5 years } & 0 & 0 \\\text { Annual cash operating costs } & \$ 6500 & \$ 4000\end{array}$
-Which of the data provided in the table is a sunk cost?

• A)The annual cash operating costs of the replacement machine
• B)The original cost of the old machine
• C)The annual cash operating costs of the old machine
• D)The disposal value of the old machine

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Definitions:

Net Demand

The difference between the total demand for a product or service and the total supply of it in the market.

Endowment

In economics, the total resources available to an individual or entity, including assets, income, and inherited resources.

Net Demand

The difference between total market demand and market supply, representing the excess demand or shortage in the market.

Utility Function

An economic concept expressing how different combinations of goods or services yield different levels of utility or satisfaction to an individual.