A boat, costing $108,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $11,000 cash and be replaced with a similar boat costing $110,000, or rebuilt for $98,000 and be brand new as far as operating characteristics and looks are concerned. A relevant cost analysis of the decision to replace the boat shows:
A cost equivalence between the two decision options.
An $11,000 net advantage associated with the decision to fix the old boat.
A $1,000 cost advantage associated with the decision to fix the old boat.
A $21,000 cost advantage associated with the decision to fix the old boat.
A $2,000 cost advantage associated with the decision to purchase a new boat.
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