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Rachel is deciding whether to remain in the home she has lived in for the past ten years, which is located very near her work, or to move into a newer home that is located in the suburbs further from her job.The old house was purchased for $160,000 and has a market value of $220,000.The new home can be purchased for $285,000.Which of the following is not relevant to Rachel's decision?1) Driving distance to work2) Cost of the old house3) Market value of the old house4) Cost of the new house

Answer :

Answer:

Option (2) is correct.

Explanation:

Rachel will not consider the cost of the old house while deciding to buy the new house or not. It is a sunk cost that cannot be recovered in future because it is already incurred before any occurrence of the event.

She takes into account the distance between home and work because the larger the distance between home and work, the larger will be the cost. She is also considering the market value of the old house for deciding whether she will make a profit or loss and also checked the purchasing cost of the new house.

Therefore, after analyzing the costs and benefits associated with the purchase of new house, she will be able to take the decision and the cost of the old house is irrelevant.

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