Question

Exercise 21-14 Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing. Current Machine New Machine Original purchase cost $15,200 $25,000 Accumulated depreciation $6,500 _      Estimated annual operating costs $24,600 $19,900 Remaining useful life 5 years 5 years If sold now, the current machine would have a salvage value of $12,400. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years. Should the current machine be replaced? (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Retain Machine Replace Machine Net Income Increase (Decrease) Operating costs $ $ $ New machine cost Salvage value (old)    Total $ $ $ The current machine should be retained  replaced   .

Answer 1

		Retain Machine		Replace Machine		Net Income Increase (Decrease)
Operating costs		($24600*5)= $123000		($19900*5)= $99500		(123000-99500)= 23500
New machine cost		0		25000		-25000
Salvage value (old)		0		-12400		12400
Total		$123000		$112100		$10900

The current machine should be Replaced as if the machine will replace the net income will increases.