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Relevant cost in F9

VVVu Viet Quang9y ago
Dear tutor!!! Can u explain for me this question in bpp kit. " LW has a half empty factory on which it pays $5,000 pa rent. If it takes on a new project, it will have to move to a new bigger factory costing $17,000 pa and it could rent the old factory out for $3,000 pa until the end of the current lease. What is the rental cost to be included in the project appraisal?" What i am thinking is like this: $5,000 is that we could save if move to a bigger factory $17,000 is a new rental as cash outflow $3,000 is cash inflow The answer is : 17,000+5,000-3,000-5,000= 14,000 Why should we take into account 5,000? It's just 17,000-3,000 = 14,000 Can u explain for me why add +5,000 and -5,000 in the bpp's answer?
VVVu Viet Quang9y ago#1
Can u answer me pleAseeeeeeee
VVVu Viet Quang9y ago#2
Answer me please sir!!!!
John MoffatJohn MoffatTutor9y ago#3
Sorry - it is New Year and I am away from home until tomorrow. I will answer you tomorrow evening if you remind me.
VVVu Viet Quang9y ago#4
Yes and happy new year Can u answer me now?
John MoffatJohn MoffatTutor9y ago#5
But it is not relevant and so there is no need to add 5,000 and then subtract 5,000 :-) I would not do that and there is absolutely no need to do that in the exam. You will still get full marks for ending up with the 14,000!
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