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7. Replacement decision: Which of the following should NOT be considered when analyzing a replacement scenario:...

7. Replacement decision: Which of the following should NOT be considered when analyzing a replacement scenario: Question 7 options: Capital expenditure on the new asset. Expense of removing the old asset and installing the new asset. Sunk cost of the old asset that is not fully depreciated less salvage (sale) value. Increase in cash flow from the newer, more efficient asset.

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Answer #1

Answer:

Sunk cost of the old asset that is not fully depreciated less salvage value, shall not be considered since the cost is historical in nature and has already been incurred which cannot be reversed and is of no use in making a decision regarding capital investment in replacement scenario.

Capital expenditure of the new assets shall be considered since it determines the actual fund requirements and the time needed to break even.

Expense to be incurred on removing the old asset and on installing new asset shall be considered since it is a relavant cost and shall have impact on decision making.

Increase inc cash flow from newer asset shall be considered since it determines the decision is viable or not.

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