Question

Use the following facts to answer Questions

1. Aron Company is trying to decide whether to keep an existing machine or replace it with a new machine. The old machine was purchased just 2 years ago for $40,000 and had an expected life of 12 years. It now costs $1,300 a month for maintenance and repairs. A new machine is being considered to replace it at a cost of $50,000. The new machine is more efficient, and it will cost only $120 a month for maintenance and repairs. The new machine has an e peered life of 12 years. 201. In deciding to replace the old machine, which of the following is a sunk cost?

(A) $50,000

(B) $1,300 per month

(C) $120 per month

D) $40,000 202.

2. Which of the following factors would be considered when deciding whether to replace the machine?

I. Any estimated salvage value of the old machine

II. The lower maintenance cost of the. new machine

III. The estimated salvage value of the new machine

(A) I and II

(B) I, II, and III

(C) II and III

D) I and III

---------------------------------------

please explain your answer. Thanks

Answer 1