You own a house that you rent for $1,200 a month.
The maintenance expenses on the house average $200
a month. The house cost $89,000 when you purchased
it several years ago. A recent appraisal on the house
valued it at $210,000. The annual property taxes are
$5,000. If you sell the house you will incur $20,000 in
expenses. You are deciding whether to sell the house
or convert it for your own use as a professional office.
What value should you place on this house when
analyzing the option of using it as a professional
Big Joe's owns a manufacturing facility that is
currently sitting idle. The facility is located on a piece
of land that originally cost $129,000. The facility itself
cost $650,000 to build. As of now, the book value of
the land and the facility are $129,000 and $186,500,
respectively. Big Joe's received an offer of $590,000
for the land and facility last week. The firm rejected
this offer even though it was told that it is a reasonable
offer in today's market. If Big Joe's were to consider
using this land and facility in a new project, what cost,
if any, should it include in the project analysis?
The most valuable investment given up if an
alternative investment is chosen is a(n):
A. salvage value expense.
B. net working capital expense.
C. sunk cost.
D. opportunity cost.
E. erosion cost.