Company is considering the replacement of equipment used in operations. The following data are available:
Old Equipment New Equipment
Original cost $93,000 $60,000
Useful life in years 13 6
Current age in years 7 0
Book value $57,000 -
Disposal value now $50,000 -
Disposal value in 6 years 0 0
Annual cash operating costs $14,000 $11,000
Required:
A) Prepare a cost comparison for replacing the old equipment. Use only relevant items and add the items together for the next 6 years.
B) Should the old equipment be replaced?