Question

Darcy Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Darcy Roofing spent $73,200 refurbishing the lift. It has just determined that another $39,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $166,500. The company estimates that both lifts would have useful lives of 6 years. The new lift is more efficient and thus would reduce operating expenses by about $24,400 per year. Darcy Roofing could also rent out the new lift for about $10,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $24,500 if the new lift is purchased. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Retain Equipment Replace Equipment Net Income Increase (Decrease) Operating expenses $ $ $ Repair costs Rental revenue New machine cost Sale of old machine Total cost $ $ $ Should company repair or replace the equipment? The equipment be replaced. Click if you would like to Show Work for this question: Open Show Work

Answer 1

5 or parentheses e.g. (45).)

		Retain Equipment		Replace Equipment		Net Income Increase (Decrease)
Operating expenses		$146400		$0		$146400
Repair costs		39000		0		39000
Rental revenue				-60000		60000
New machine cost				166500		-166500
Sale of old machine				-24500		24500
Total cost		$185400		$82000		$103400