Question

An asset that was purchased 3 years ago for $100,000 is becoming obsolete faster than expected. The company thought the asset would last 5 years and that its book value would decrease by $20,000 each year and, therefore, be worthless at the end of year 5. In considering a more versatile, more reliable high-tech replacement, the company discovered that the presently owned asset has a market value of only $15,000. If the replacement is purchased immediately at a first cost of $75,000 and if it will have a lower annual worth, what is the amount of the sunk cost? Assume the company’s MARR is 15% per year.  

Answer 1

Given:

cost of the asset three year before is =$100,000

Decrease in book value is=$20,000 

Present market value is=$15,000

First cost for replacement =$75,000

solution:

Cost effective ratio(CER):The net value is split by the changes in health outcomes to urge a cost-effectiveness magnitude relation. value per illness avoided or value per mortality avoided area unit 2 examples. The results area unit provided as web value savings if cyber web prices area unit negative (meaning a more practical intervention is a smaller amount expensive).

Cost effective ratio can be calculated by using the following formula:

Cost effective ratio= Cost per employee /Measurement score

Sunk cost=

[cost

 of the asses−(Decreasing book value×Number of year from the purchase

 of assest )−Present market value]

$=100,00−(20,000×3)−15,000$

$=100,000−60,000−15,000$

$=25,000$

Thus the sunk cost is25,000