FIN 419 Expect Success/uophelp.com FIN 419 Expect Success/uophelp.com | Page 21

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
$8 comma 000
as the cost.

P10-5