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P10-4 (similar to)
Opportunity cost. Richardses' Tree Farm, Inc. has branched into
gardening over the years and is now considering adding patio furniture
to its product lineup. Currently, the area where the patio furniture is to
be displayed is a vacant slab of concrete attached to the indoor shop. The
company originally paid $8000 to put in the slab of concrete three years
ago. It would now cost $13000 to put in the same slab of concrete.
Should the company consider the concrete slab when expanding its
outdoor garden shop to include patio furniture? If yes, which value
should it use?Should the company consider the concrete slab when
expanding its outdoor garden shop to include patio furniture? If yes,
which value should it use?
(Select the best response.)
A.No. The slab is a sunk cost unless there is another use for the slab that
could provide cash flow to Richardses' Tree Farm. The additional cash
flow that the slab could provide is the opportunity cost, not the current
replacement cost or the original cost.
B.Yes, use
$13 comma 000
as the cost.
C.Yes, use