Mauldin Welding Shop is considering the purchase of new high-tech welding equipment.If the equipment is purchased, Mauldin can avoid the cost of updating the old equipment estimated to be $3,000.In determining the cash flows associated with the new equipment, the cost of updating the old equipment is
A)a cash outflow.
B)a cash inflow.
C)a sunk cost.
D)not relevant.

Question

Quizplus · Accepted Answer

The cost of updating the old equipment is considered a cash inflow when evaluating the new equipment because it is a cost that can be avoided by making the purchase. Avoided costs are treated as benefits or inflows in the analysis.

Mauldin Welding Shop Is Considering the Purchase of New High-Tech