Task: Consider these data regarding Douglas County’s photocopying requirements:
|
|
Old Equipment
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Proposed Replacement Equipment
|
|
Useful life, in years
|
5
|
3
|
|
Current age, in years
|
2
|
0
|
|
Useful life remaining, in years
|
3
|
3
|
|
Original cost
|
$25,000
|
$15,000
|
|
Accumulated depreciation
|
10,000
|
0
|
|
Book value
|
15,000
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Not acquired yet
|
|
Disposal value (in cash) now
|
3,000
|
Not acquired yet
|
|
Disposal value in 3 years
|
0
|
0
|
|
Annual cash operating costs for power, maintenance, toner, and supplies
|
14,000
|
7,500
|
1. Suppose the “decision model” favored by top management consisted of a comparison of a three-year accumulation of cash under each alternative. As the manager of office operations, which alternative would you chose? Why?
2. Suppose the “performance evaluation model” emphasized the minimization of overall costs of photocopying operations for the first year. Which alternative would you choose?