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Initial Cost of Project

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Wilbert's Inc. paid $90,000 in cash, for a piece of equipment three years ago. Last year, the company spent $10,00 to update the equipment with the latest technology. The company no longer uses this equipment in their current operations and has received an offer of $50,000 from a firm who would like to purchase it. Wilbert's is debating whether to sell the equipment or to expand their operations such that the equipment can be used. When evaluating the expansion option, what value, if any, should Wilbert's assign to this equipment as an initial cost of the project?

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Solution Summary

The solution discusses Wilbert's Inc. paid $90,000 in cash, for a piece of equipment three years ago. Last year, the company spent $10,00 to update the equipment with the latest technology. The company no longer uses this equipment in their current operations and has received an offer of $50,000 from a firm who would like to purchase it. Wilbert's is debating whether to sell the equipment or to expand their operations such that the equipment can be used. When evaluating the expansion option, what value, if any, should Wilbert's assign to this equipment as an initial cost of the project?

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The relevant cost for the exansion project would be the opportunity cost of using the machine. Since ...

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