Question

Instructions Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows Old Machine Cost of machine, 10-year life $88,825 Annual depreciation (straight-line) 8,700 Annual manufacturing costs, excluding depreciation 23,710 Annual non-manufacturing operating expenses 5,955 Annual revenue 74,035 Current estimated selling price of machine 29,835 New Machine Purchase price of machine, six-year life $119,840

answers are not correct

Answer 1

1)

	Continue with Old Machine	Replace Old Machine	Differential Effect on Income
	(Alternative 1)	(Alternative 2)	(Alternative 2)
Revenues
Proceeds from Sale of Old Machine		29,835.00	29,835.00
Costs
Purchase Price		-                     119,840.00	-                                        119,840.00
Annual Manufacturing costs	-                                   142,260.00	-                        41,520.00	-                                        100,740.00
Income (loss)	-                                   142,260.00	-                     131,525.00	10,735.00

So Company should replace the old machine because new machine has less cost.

• 2) What opportunities are available for the use of the $90,005 funds that are required to purchase the new machine?
• What effect does the federal income tax have on the decision?
• Are there any improvements in the quality of work turned out by the new machine?