Question

9. Award: 10.00 points Solomon Company is considering the replacement of some of its manufacturing equipment. Information regarding the existing equipment and the potential replacement equipment follows: Existing Equipment Cost $ 114,000 Operating expenses 102,000 Salvage value 20,000 Market value 46,000 Book value 34,000 Remaining useful life 7 years Replacement Equipment Cost $ 114,000 Operating expenses 96,000 Salvage value 12,000 Useful life 7 years *The amounts shown for operating expenses are the cumulative total of all such expected expenses to be incurred over the useful life of the equipment. Required Calculate the total relevant cost of existing equipment and the potential replacement equipments. Should the equipment be replaced? Old New Total cost Should the equipment be replaced?

Answer 1

A C D E Old 1 New 2 Market value 3 Cost of new equipment $ 46,000 $114,000 -20,000 $-12,000 102,000 96,000 128,000 $198,000 4 Salvage value 5 Operating expenses $ 6 Total Cost 7 8 As the total cost for new equipment is more compared to old machine, No, the equipment should not be repalced 9 10

A B C Old 1 New 46000 2 Market value 3 Cost of new equipment Salvage value 114000 -12000 |-20000 102000 96000 5 Operating expenses +B2+B4+B5+C3+C4+C5 6 Total Cost 7