Kim Murphy purchased a 1997 LeBaron Convertible in 2005 for $5,000. Since purchasing the car, she has spent the following amounts on parts and labor:

Fuel pump         $120

canvas top         $265

master cylinder $135

disk brakes       $150

hoses,plugs        $80

Labor                 $250

Total                 $1,000

Kim is not totally satisfied with the LeBaron. to bring the car to a condition that she feels it should be, she anticipates the following cost of restoration:

Rebuilt engine         $700

New paint job          $800

tires                         $360

New interior             $500

Misc maintenance   $340

Total                       $2,700

In a visit to a used car dealer, kim found a four year old eclipse in mint condition for $7,000. Kim has advertised and found that she can sell the Labaron for only $3,000. if she buys the eclipse, Kim will pay cash, but she would need to sell the LeBaron.

Required

Using the 5 step sequence

A. In trying to decide whether to restore the Lebaron or buy the eclipse, Kim is distressed because she already has spent $6,000 on the LeBaron. The investment seems too much to give up. How would you react to Kim's concerns?

B. List all cost that are relevant to Kim's decision. What advice would you give Kim?