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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:

    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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    Solution Preview

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

    Solution Summary

    The expert examines relevant and sunk costs.