Question

The law firm of Matadin and Howe relies heavily on a colour laser printer to process the paperwork. Recently the printer has not functioned well and print jobs were not being processed. Management is considering updating the printer with a faster model.

		Current Printer			New Model
Original purchase cost		$30,000			$24,000
Accumulated depreciation		17,000			—
Estimated operating costs (annual)		3,000			2,000
Useful life		4 years			4 years

If sold now, the current printer would have a salvage value of $4,000. If operated for the remainder of its useful life, the current printer would have zero salvage value. The new printer is expected to have zero salvage value after 4 years.

Prepare an analysis to show whether the company should retain or replace the printer. (If an amount reduces the net income then enter with a negative sign preceding the number, e.g. -15,000 or parenthesis, e.g. (15,000).)

		Keep Printer		Replace Printer		Net Income Increase (Decrease)
Period of 4 years
Variable costs		$		$		$
Salvage value
New machine cost
		$		$		$

The company should

the printer.

Answer 1

Answer:

	Keep Printer	Replace Printer	Net Income Increase (Decrease)
Period of 4 years
Variable costs	$12,000 [3,000 *4]	$8,000 [2,000 *4]	$4,000
Salvage value	0	(4,000)	4,000
New machine cost	0	24,000	(24,000)
	$12,000	$28,000	($16,000)

The company should not replace the Printer