Problem: The Keene Company is considering to replace its old machine with a book value of P75,000 and still have a remaining useful life of 5 years. The old machine will be replaced with a new one that will cost P250,000, will have a 5 year useful life and no savage value.
The annual operating costs of the old machine amount to P90,000 which can be reduced by 60% if a new machine is acquired. The old machine would require reconditioning that will cost P10,000 if not replaced which will be incurred before it starts operation. The old machine will have a zero disposal value of 5 years, but can be disposed now at P20,000.
Required:
Ignoring the time value of money and income taxes, determine the relevant and differential (Quantity a five-year period)