A Corporation Has Been Steadily Losing Money on One of Its

question 97

Multiple Choice

A corporation has been steadily losing money on one of its product lines.The factory used to produce that brand cost $20 million to build.The firm now is considering an offer to buy that factory for $15 million.Which of the following statements about the decision to sell or not is correct?

• A)The firm should turn down the purchase offer because the factory cost more than $15 million to build.
• B)The $20 million spent on the factory is a sunk cost that should not affect the decision.
• C)The $20 million spent on the factory is an implicit cost that should be included in the decision.
• D)The firm should sell the factory only if it can reduce its costs elsewhere by $5 million.
• E)The firm's opportunity cost would be $35 million if it decides to sell the factory.

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