FIN 419 ASSIST Perfect Education/fin419assist.cofi FIN 419 ASSIST Perfect Education/fin419assist.cofi | Page 30

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.