Planet Design Services, Inc., is considering replacing a machine. The following data are available: Old Machine...
Planet Design Services, Inc., is considering replacing a machine. The following data are available:
|
Old Machine |
Replacement Machine |
||
|
Original cost |
$670,000 |
$490,000 |
|
|
Useful life in years |
8 |
4 |
|
|
Current age in years |
4 |
0 |
|
|
Book value |
$350,000 |
- |
|
|
Disposal value now |
$ 162 comma 000$162,000 |
- |
|
| Disposal value in
44 years |
$0 |
$0 |
|
|
Annual cash operating costs |
$108,000 |
$57,000 |
The difference between keeping the old machine and replacing the old machine is ________.
A.$840,000 in favor of replacing the old machine
B. $124,000 in favor of keeping the old machine
C. $840,000 in favor of keeping the old machine
D. $124,000 in favor of replacing the old machine
Homework Answers
Net Cost = $490000 - $162000 = $328000
Net Savings = ($108000-$57000) x 4 = $204000
Since cost is more than savings by $124000 i.e. $328000 - $204000
Answer is B. $124,000 in favor of keeping the old machine
Add Answer to:
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