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Certified Specialist Of Spirits Practice Exam

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A company purchased a special machine five years ago for $50,000. It now has a book value of $10,000 and can be sold for $2,000. In deciding whether to replace the machine, what is the $50,000 original purchase price considered?
Correct Answer:
A sunk cost
Explanation:
Sunk costs are past costs that have already been incurred and cannot be changed. The original purchase price is a sunk cost and should be ignored in future decisions.

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