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Rory Company has a machine with a book value of $113,000 and a remaining five-year useful life. A new machine is available at

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Incremental Income From Replacing Machine
Particulars Amount
$
Cost of new machine -118000
Cash received from trade in of old machine 68000
Reduction in variable manufacturing costs 105000
($21000*5 years)
Incremental income/(incremental costs) 55000

The company should replace the machine as this increases income by $55000.

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