Question

Because their three adult children have all at last left home, Alan and Marian Smith recently moved to a smaller house. Alan owns a riding lawnmower he bought three years ago to take care of the former house’s huge yard; it should last another five years. With the new house’s smaller yard, Alan thinks he could hire someone to cut his grass for $400 per year. He wonders if this option is financially sound. Relevant information follows.
Riding Lawn Mower Amount
Original cost .......... $2,700
Accumulated depreciation ...... 900
Current market value ........ 1,300
Estimated salvage value ....... 0

Required
a. What is the annual opportunity cost of using the riding mower? Based on your computations, recommend whether Alan should sell it and hire a lawn service.
b. Determine the total cost of hiring a lawn service for the next five years. Based on your computations, recommend whether Alan should sell the mower and hire a lawn service.



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  • CreatedFebruary 07, 2014
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