Question

Check my work QS 23-15 Keep or replace LO A1 1.42 points Rory Company has a machine with a book value of $99,000 and a remaining five-year useful life. A new machine is available at a cost of $122.500, and Rory can also receive $84,000 for trading in its old machine. The new machine will reduce variable manufacturing costs by $21,500 per year over its five-year useful life. eBook Calculate the incremental income. (Any losses or outflows should be entered with a minus sign.) Hint Incremental Income From Replacing Machine Ask Print References Incremental income (incremental cost)

Answer 1

Calculation of Incremental Loss/Income:

Loss on sale of Old machine (99000-84000) = 15000

Incremental cost on purchase of new machine =122500

Less: Incremental savings in Variable costs

for 5 years (21500 x 5 years) = -107500

Net Incremental Loss    = -30000