Kevin Is Re-Finishing an Antique Grandfather Clock That He Purchased

question 89

Multiple Choice

Kevin is re-finishing an antique grandfather clock that he purchased at a flea market for $300.He expects to be able to sell the clock for $450.At the last minute,Kevin discovers that he needs to repair the gears at a cost of $175 to make the clock worth $450 to potential buyers.It turns out that he could also sell the clock now,without completing the additional repairs,for $250.What should Kevin do?

• A) He should sell the clock now for $250.
• B) He should keep the clock but not make the repairs since the original $300 is a sunk cost.
• C) He should complete the additional repairs and sell the clock for $450.
• D) He should keep the clock after making the repairs since it is not rational to spend a total of $475 on an item that can only be sold for $450.
• E) Kevin is indifferent between selling the clock as is or selling it after completing the repairs.

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Definitions:

Earnings Per Share

A measure of a company's profitability calculated by dividing its net income by the number of its outstanding shares.

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An action by a company to divide its existing shares into multiple ones to boost the stock's liquidity, though the company's overall market value stays the same.