Discussion
An asset's book value after 3 years is 40 000 and its market value 55 000. In a replacement study the relevant figure is
Answer: B
Correct answer: 55 000, the amount realisable on disposal
A replacement study asks what keeping the asset costs from today onward, and keeping it means forgoing the 55 000 that could be had by selling it. That opportunity cost is the relevant figure. The book value is an accounting record of past allocations and the original cost is sunk; neither affects any decision now.
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