Mambo Company is considering a new machine for its production plant to replace an old...
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Accounting
Mambo Company is considering a new machine for its production plant to replace an old machine that originally cost $14,000 and has $11,000 of accumulated depreciation. The new machine can be purchased at a cash cost of $20,000, but the distributor of the new machine has offered to take the old machine in as a trade-in, thereby reducing the cost of the new machine to $18,000.
Suppose that Mambo had the opportunity to sell the old machine to a friend at another company for $2,500 but chose instead to trade the machine in on the new machine, to avoid the risk of the friend not being satisfied with the old machine. Using this additional information, calculate the relevant cost of the new machine.
Select one:
A. $18,500, or the net cost of the new machine plus the opportunity cost of $500, which is the difference between the trade-in value of the old machine and the amount offered by the friend for the old machine.
B. $20,000, or the gross cost of the new machine
C. $18,000, or the net cash paid to the distributor
D. $19,000, or the gross cost of the new machine minus the $1,000 loss on disposing of the old machine.
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