A company owns a 7-year-old metal lathe machine with a book value of $80,000. The present market value of the equipment is also $80,000. A new metal lathe machine can be purchased for $300,000.

Using an outsider's point of view (opportunity-cost approach), what is the net first cost of purchasing the new metal lathe machine? _______$

Question

27-03-2025
Mathematics

High School

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A company owns a 7-year-old metal lathe machine with a book value of $80,000. The present market value of the equipment is also $80,000. A new metal lathe machine can be purchased for $300,000.

Using an outsider's point of view (opportunity-cost approach), what is the net first cost of purchasing the new metal lathe machine? _______$

Answer :

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CallumPhillips CallumPhillips · Answer 1 · 2023-09-16T15:51:30-04:00

Final answer:

The net first cost of purchasing the new metal lathe machine from an outsider's point of view (opportunity cost approach) is $220,000. This is calculated by subtracting the present market value of the old machine ($80,000) from the cost of the new machine ($300,000).

Explanation:

In the context of an opportunity-cost approach, the net first cost of purchasing a new metal lathe machine is the cost of the new machine minus the present market value of the old machine. Here, the cost of the new machine is $300,000 and the present market value of the old machine is $80,000.

Therefore, using the opportunity cost approach, the net first cost of purchasing the new metal lathe machine would be: $300,000 - $80,000 = $220,000.

This calculation assumes that the company can sell the old machine on the market for its current market value prior to purchasing the new machine, and thus the cost of the new machine is offset by the sale of the old machine.

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