Stephen is restoring a car and has already spent $4,000 on the restoration.He expects to be able to sell the car for $5800.Stephen discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers.He could also sell the car now,without completing the additional work,for $3,800.What should he do?
A)He should sell the car now for $3,800.
B)He should keep the car since it wouldn't be rational to spend $6,400 restoring a car and then sell it for only $5,800.
C)He should complete the additional work and sell the car for $5,800.
D)It does not matter which action he takes since the outcome will be the same either way.

Question

Quizplus · Accepted Answer

If Stephen sells the car now for $3,800, he minimizes his loss to $200 ($4,000 - $3,800). If he spends an additional $2,400, his total cost will be $6,400, resulting in a $600 loss when selling for $5,800. Therefore, selling now is the better financial decision.

Stephen Is Restoring a Car and Has Already Spent $4,000