Question

a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an watched a computerized elevator demonstrated. He was impressed with the elevator's speed, comfort of ride, and cost efficiency is purchasing agent to collect price and operating cost data on the new elevator In addition, he asked the company's industry equipment exhibition where he Upon returning from the exhibition, he asked his accountant to provide him with cost data on the company's elevator. This information is presented below computerized eleva a $102500) $159000 5 years Depreciation methodStraight-line Straight-line $9000 $34000 Flxed 23400$Po0 beginning of 2020, Richter Condos will be able to sell it for $25100 l analysis, determine if the old elevator should be replaced. (In the first two columns, enter costs and expenses as positive amounts, and any Using 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 eg.-15 or parentheses e-g. (15).) Net Income Increase Retain Replace (Decrease) Old Elev Fixed operating costs Salvage on old elevator Totals

Answer 1

Hence Elevator should be replaced because there is Increase in Net Income.

Retain Old Elevator Replace Old Elevator Net Income Inc/ (Dec) 36,000.00$ 32,000.00 159,000.00$(159,000.00) (25,100.00) $ 170,000.00 $ Variable Operating Cost 134,000.00 Fixed Operating Cost 117,000.00 S 85,000.00 New elevator cost Salvage of Old elevator 25,100.00 85,100.00 287,000.00S Totals

(Here Variable and fixed costs are taken for full life of asset i.e 5 years and 4 years.)