Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing.
|
|
Current Machine |
|
New Machine |
|
| Original purchase cost |
|
$15,040 |
|
|
$24,810 |
|
|
| Accumulated depreciation |
|
$6,950 |
|
|
_ |
|
|
| Estimated annual operating costs |
|
$24,790 |
|
|
$19,760 |
|
|
| Useful life |
|
5 years |
|
|
5 years |
|
If sold now, the current machine would have a salvage value of $10,260. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years.
Prepare an incremental analysis.(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
|
|
Retain
Machine |
|
Replace
Machine |
|
Net Income
Increase
(Decrease) |
|
| Operating costs |
|
$ |
|
$ |
|
$ |
|
| New machine cost |
|
|
|
|
|
|
|
| Salvage value (old) |
|
|
|
|
|
|
|
| Total |
|
$ |
|
$ |
|
$ |
Should the current machine be replaced?
The current machine should be retain edreplaced.