The difference between sunk costs and opportunity costs

Assignment Help Finance Basics
Reference no: EM131108516

Dave and Ann Stone have been living at their present home for the past 6 years. During that time, they have replaced the water heater for $375, have replaced the dishwasher for $599, and have had to make miscellaneous repair and maintenance expenditures of approximately $1,500. They have decided to move out and rent the house for $975 per month. Newspaper advertising will cost $75. Dave and Ann intend to paint the interior of the home and power-wash the exterior. They estimate that that will run about $900.

The house should be ready to rent after that. In reviewing the financial situation, Dave views all the expenditures as being relevant, and so he plans to net out the estimated expenditures discussed above from the rental income.

a. Do Dave and Ann understand the difference between sunk costs and opportunity costs? Explain the two concepts to them.

b. Which of the expenditures should be classified as sunk cash flows and which should be viewed as opportunity cash flows?

Reference no: EM131108516

Questions Cloud

What amount should appaloosa report as total 2011 : What amount should Appaloosa report as total 2011 tax expense
Determine the escape velocity of a planet : Use the information above to explain explain how radical expression can be used in space exploration. Include an explanation of how you could determine the escape velocity of a planet and why you would need this information before you landed on it..
The joint marginal probability distribution : Let (S1, ... , Sn ) be a vector of ranks that is uniformly distributed over the set of all n! permutations of (1, 2, ... , n). Show that the joint marginal probability distribution of (Si , Sj), for i ≠ j = 1, ... , n, is given by
Discuss why art survives or does not : Distinguish between the Paleolithic and Neolithic Periods in terms of time and cultural developments. Compare and contrast specific examples of artifacts, practices, and systems of belief. Discuss why art survives or does not
The difference between sunk costs and opportunity costs : The house should be ready to rent after that. In reviewing the financial situation, Dave views all the expenditures as being relevant, and so he plans to net out the estimated expenditures discussed above from the rental income. Do Dave and Ann under..
What is the x intercept : Is the equation a function or a relation? How do you determine that - What is the x intercept?
Illusion of virtualization by virtualizing the cpu : Discuss how OS creates the illusion of virtualization by virtualizing the CPU. By running one process, then stopping it and running another, and so forth, the OS can promote the illusion that many virtual CPUs exist when in fact there is only one ..
Prepare the journal entry to record the income tax : Using the information from BE19-2, assume this is the only difference between Oxford's pretax financial income and taxable income.
Test the hypothesis that the degree of pollution : Use the Lake Michigan pollution data in Table 8.8 to test the hypothesis that the degree of pollution (as measured by the number of odor periods) had not changed with time against the alternative that there was a general increasing trend in the po..

Reviews

Write a Review

Finance Basics Questions & Answers

  Find what is the company breakeven point

A company's fixed operating costs are $480,000, its variable costs are $3.85 per unit, and the product's sales price is $4.30. What is the company's breakeven point; that is, at what unit sales volume will its income equal its costs? Round your an..

  Computing the average inventory days outstanding

Compute average inventory days outstanding for both years and interpret any change. What does this ratio mean? Is the year-over-year change good news? Why?

  The target capital structure for jowers manufacturing

The target capital structure for Jowers Manufacturing is 49% common stock, 10% preferred stock, and 41% debt. If the cost of common equity for the firm is 20.7%, the cost of preferred stock is 11.6%, and the before tax cost of debt is 10.8% what is J..

  Significance of financial ratios and the information

By themselves, do financial ratios provide all the information required to manage an organisation profitably?

  The oakland mills company has disclosed the following

the oakland mills company has disclosed the following financial information in its annual reports for the period ending

  Questions on project evaluation and dividend policy

Multiple choice questions on project evaluation, dividend Policy and bond valuation - conflicts of interest between stockholders and bondholders?

  What is the average return in each market

Consider the given returns: What is the average return in each market from the point of view of a U.S. investor and of a U.K. investor?

  Marketing communications and retail management

Marketing Communications and Retail Management

  Computation of betas for portfolios

Computation of betas for portfolios and compare the risks of these portfolios to the markets and Which portfolio is more risky

  Discuss the difference between absolut purchasing power

Discuss the difference between absolut purchasing power parity and relative purchaing power parity. Please write a minimum of three paragraphs answering the question above. Please also give an example that supports your answer. If you use any ou..

  Examples of franchise systems

There are many examples of franchise systems. Most people think of fast-food franchises, such as McDonald's and Burger King, but many franchises also provide a variety of other goods and services including auto repair, tax advising, consulting, re..

  International monetary cooperation

The oldest international organization that encourages and promotes international monetary cooperation is the:

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd