Reference no: EM13791705
The PQR Coal Company has several conventional and strip mining operations. Recently, new legislation has made strip mining, which produces coal of high sulfur content, unprofitable, so those operations will be discontinued. Unfortunately, PQR purchased $1 million of earthmoving equipment for the strip mines 2 years ago and this equipment is not particularly well-suited to conventional mining.
Ms. Big, the president, suggests that since the equipment can be sold for $500,000, it should be scrapped. In her words, "I learned a long time ago that when you make mistakes it's best to admit them and take your lumps. By ignoring sunk costs you aren't tempted to throw good money after bad. The original value of the equipment is gone."
A new employee, Mr. Embeay, has suggested that the equipment should be adapted to the conventional operations. He argues, "We are about to spend $800,000 on some new conventional equipment. However, for a smaller expenditure of $250,000 we can adapt the old equipment to perform the same task. Of course, it will cost about $20,000 per year more to operate over the assumed 10-year lives of each alternative. But at an interest rate of 10%, the inclusion of the present value of $20,000 per year for 10 years and the initial $250,000 is still less than $800,000 for new equipment. While it's true that we should ignore sunk costs, at least this way we can cut our losses somewhat."
Who's correct? Why? What should PQR do? Why?
Business ethics and moral relativism
: What does the court suggest that Metro-North should have done in this case that would have satisfied the duty?
|
Consumer division is eliminated
: If the Consumer Division were eliminated, $1,600,000 of the above fixed expenses could be avoided. What will be the effect on Xampa's profit next year if Consumer Division is eliminated?
|
How much has the money supply increased or decreased
: What is the maximum amount of new loans that this bank can make and assume that the bank makes these loans. What will the new balance sheet look like?
|
Possess the least degree of interest rate risk
: Which bond would most likely possess the least degree of interest rate risk? A. 8% coupon rate, 15 years to maturity B. 10% coupon rate, 10 years to maturity C. 12% coupon rate, 8 years to maturity D. 8% coupon rate, 12 years to maturity
|
Several conventional and strip mining operations
: The PQR Coal Company has several conventional and strip mining operations. Recently, new legislation has made strip mining, which produces coal of high sulfur content, unprofitable, so those operations will be discontinued. Unfortunately, PQR purchas..
|
What is the probability that zero customers will exceed
: What are the mean and standard deviation of the number of customers exceeding their credit limits - what is the probability that zero customers will exceed their limits?
|
Research tools and techniques of managing data
: You have explored many options for managing data as well as its importance to the overall health of an organization in making well-informed decisions.
|
Should the city build the stadium
: The city of Toledo has received a proposal to build a new multipurpose outdoor sports stadium. The expected life of the stadium is 20 years. It will be financed by a 20-year bond paying 8% interest annually. Should the city build the stadium?
|
The effect on the accounts and the financial statements
: The effect on the accounts and the financial statements of the payment of an ordinary note is:
|