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Relevant and Sunk Costs

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Karen's Cookie Company is considering replacing its giant cookie mixer with a new one. The following data has been compiled to evaluate the function:

EXISTING NEW
Original Cost $8,000 $10,000
Annual Operating Cost $4,000 $2,200
Remaining Life 5 years 5 years
Disposal value now $3,000

a. What costs are relevant?
b. What costs are sunk?
c. What are the net cash flows, assuming Karen's Cookie Company purchases the new cookie mixer?

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The expert examines relevant and sunk costs.

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a) Relevant costs are : Original cost of new mixer , Anual ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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