Question

You have a project that has just ended, and you are trying to determine how best to use the plant/property/equipment that is no longer needed. The plant/property/equipment is fully depreciated. From a finance perspective, when deciding on whether or not you should sell the plant/property/equipment, is it important to consider what you paid for the plant/property/equipment? Why or why not?

Answer 1

From a finance perspective, it is not important to consider what you paid for the plant/property/equipment (PPE).

This is because the PPE is no longer needed. It cannot be used in any other project. It is also fully depreciated. Hence, the original cost is a sunk cost, which means that the original cost is incurred in the past and cannot be recovered. The original cost is irrelevant to the decision today, because it can be sold to realize an immediate cash flow. As the book value is zero, the tax effects are also irrelevant. As cash flows received today are worth more than cash flows received later, it makes from a finance perspective to immediately sell the PPE, since it is no longer needed in any other project.