Savion is restoring a car and has already spent $4,000 on the restoration. Savion expects to be able to sell the car for $5,800 but needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. Savion could also sell the car now, without completing the additional work, for $3,800. What should Savion do?

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BlackTom AI · Accepted Answer

The scenario asks Savion to decide between finishing the restoration or selling now, given the sunk costs and potential future outcomes.
First, identify sunk costs: Savion has already spent 4,000, which cannot be recovered regardless of the future decision. Therefore, this amount should not factor into the incremental decision about what to do next.
Next, compare the two remaining options in terms of future cash flows:
- Sell the car now for 3,800. This yields an immediate cash inflow of 3,800 and avoids any additional spending.
- Complete the additional work (2,400) and then sell for 5,800. The total investment would be 4,000 + 2,400 = 6,400, and the sale would bring in 5,800, resulting in a net outcome of 5,800 − 6,400 = −600. This option produces a loss of 600 relative to the current state and does not improve profitability.
From an incremental perspective, the only additional cost to reach the higher sale price is 2,400, but the incremental revenue is 5,800, which is not enough to cover the total cost of 6,400; the project is unprofitable as stated. In contrast, selling now for 3,800 provides a positive, immediate return without any further outlay.
Therefore, choosing to sell now avoids the unfavorable outcome associated with completing the extra work and yields the better financial result given the information provided.

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