If a company uses some idle property, what should it record as the investment outlay: the purchase price several years ago, the current market value, or nothing?
If a company uses some idle property, what should it record as the investment outlay: the purchase price several years ago, the current market value, or nothing?
If a company uses some idle property, what should it record as the investment outlay: the purchase price several years ago, the current market value, or nothing?
Answer
Market Value
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3. BASIC PRINCIPLES OF CAPITAL BUDGETING
A sunk cost is one that has already been incurred. You cannot change a sunk cost. Today’s decisions, on the other hand, should be based on current and future cash flows and should not be affected by prior, or sunk, costs.
<span>An opportunity cost is what a resource is worth in its next-best use. For example, if a company uses some idle property, what should it record as the investment outlay: the purchase price several years ago, the current market value, or nothing? If you replace an old machine with a new one, what is the opportunity cost? If you invest $10 million, what is the opportunity cost? The answers to these three questions are, respective
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