Suppose that your brother, Raymond, recently bought a new laptop computer for $800 to use in his land surveying business. After purchasing several add-on components for $400, he realized that they are not compatible with the laptop and, therefore, he cannot use the computer for its intended purpose of mapping land coordinates using GPS satellites. He has also purchased a one- year service agreement and warranty for the add-on components for $75. The computer cannot be returned, but Raymond has found a new laptop costing $1,200 that will work with his GPS mapping components. Raymond is trying to decide what to do now and has asked your advice.
1. Identify the costs that are relevant to Raymond’s decision.
2. Are there any costs that are irrelevant?
3. Suppose that Raymond made the following statement: “I can’t get a new computer now. I have to get my money’s worth from the old one.” Is Raymond’s logic correct?