Discussion
A machine bought for 80 000 three years ago now has a market value of 30 000 and a book value of 44 000. In a replacement study the figure to use is
Answer: B
Correct answer: 30 000
The market value is the amount forgone by keeping the machine, and forgoing money one could have is economically the same as spending it. The 80,000 paid three years ago is sunk, the 44,000 book value is an accounting figure, and the 14,000 difference between them matters only through its effect on tax.
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