Answered

Is a trade-in allowance on old equipment relevant to a decision to retain or replace equipment? Why or why not?

1. It is not relevant since it does not differ across the two options.
2. It is not relevant because it relates to the net book value of the old equipment.
3. It is not relevant since it is a sunk cost.
4. It is relevant since it differs across the two options.



Answer :

GinnyAnswer

Final answer:

A trade-in allowance on old equipment is relevant to a decision to retain or replace equipment as it differs across the two options.


Explanation:

A trade-in allowance on old equipment is relevant to a decision to retain or replace equipment because it differs across the two options. When considering whether to keep the existing equipment or replace it, the value offered as a trade-in can impact the overall cost and benefit analysis.

For example, if a company receives a significant trade-in allowance for the old equipment, it can reduce the cost of acquiring new equipment, making replacement a more attractive option.

On the other hand, if the trade-in allowance is minimal, it may be more cost-effective to retain the old equipment instead.


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