Home Industries Is Considering Replacing a Machine That Is Presently

question 125

Multiple Choice

Home Industries is considering replacing a machine that is presently used in its production process.Which of the following amounts represents a sunk cost? $$\begin{array} { | l | r | r | } \hline & \text { Old Machine } & \begin{array} { c } \text { Replacement } \\\text { Machine }\end{array} \\\hline \text { Original cost } & \$ 55,000 & \$ 46,000 \\\hline \text { Remaining useful life in years } & 5 & 5 \\\hline \text { Current age in years } & 5 &0 \\\hline \text { Book value } & \$ 30,000 & \\\hline \text { Current disposal value in cash } & \$ 9,000 & \\\hline \text { Future disposal value in cash (in 5 years) } &\$0&\$0 \\\hline \text { Annual cash operating costs } &\$ 7,000 & \$ 4,500 \\\hline\end{array}$$

• A) $55,000
• B) $30,000
• C) $9,000
• D) $46,000

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Definitions:

Net Profit Margin

The net profit margin is a financial ratio that shows the percentage of profit a company generates from its total revenue.

Average Total Assets

A measure used to calculate the mean value of a company's assets over a specific period, helpful in assessing the company’s asset utilization efficiency.

Return on Assets

An indicator of how profitable a company is relative to its total assets, measuring the efficiency in using assets to generate earnings.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue, indicating the company's profitability.