Kay Dart Enterprises uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime and excessive labor costs. The management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines: Old Machine New Machine Original purchase cost $680,000 $860,000 Accumulated depreciation 460,000 - Estimated life 5 years 5 years It is estimated that the new machine will produce annual cost savings of $190,000. The old machine can be sold to a scrap dealer for $16,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives.
Instructions: Determine whether the company should purchase the new machine.