Question

Nathan T Corporation is comparing two different options. Nathan T currently uses Option 1, with revenues of $81.000 per year, maintenance expenses of $6,200 per year, and operating expenses of $32,200 per year. Option 2 provides revenues of $74,000 per year, maintenance expenses of $6,200 per year, and operating expenses of $27,300 per year. Option 1 employs a piece of equipment which was upgraded 2 years ago at a cost of $21,000. If Option 2 is chosen, it will free up resources that will bring in an additional $5,000 of revenue. Complete the following table to show the change in income from choosing Option 2 versus Option 1. Designate Sunk costs with an "S" otherwise select "NA" (Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses e.g. (45).) Option 1 Option 2 Net Income Increase (Decrease) Sunk (5) Revenues $ 81000 $ 74000 $ -7000 NA A Maintenance expenses 6200 M 6200 i 0 NA Operating expenses 32200 27300 4900 NA Equipment upgrade 21000 21000 O S Opportunity cost 5000 0 5000 NA $ 2900

the value in option 2, equipment upgrade is incorrect. Please explain the correct answer!

Answer 1

Answer. The value to be entered in option 2 for equipment upgrade is "0"

Explanation:

As the Nathan T corporation is comparing two different options, the first three activities are carried under both the options that's why we can compare those options and assess.

The option 1 and option 2 have their own feature that is not their with another, thus the option 2 didn't have employed any equipment to upgrade the amount that should be taken is "0"

The amount for upgrade was incurred in past hence it is sunk cost.

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