Problem:
Price Industries purchased a piece of milling equipment four years ago for $149,000 and, at the beginning of last year, spent $11,000 to update the equipment with the latest technology. The company no longer uses this equipment in its current operations and has received an offer of $110,000 from a firm that would like to purchase it. Price is debating whether to sell the equipment or to expand its operations so that the equipment can be used.
Required:
Question: When evaluating the expansion option, what value, if any, should the firm assign to this equipment as an initial cost of the project?
- $0
- $21,000
- $89,000
- $110,000
Note: Please explain comprehensively and give step by step solution.