Twyla Enterprises uses a word processing 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 |
$15,600 |
|
$25,700 |
|
|
Accumulated depreciation |
6,200 |
|
--- |
|
|
Estimated operating costs |
23,100 |
|
18,800 |
|
|
Useful life |
5 years |
|
5 years |
|
If sold now, the current machine would have a salvage value of $5,100. 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.
Complete the analysis to determine if the current machine should be replaced. (Ignore the time value of money. If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number eg -45 or parentheses eg (45). To enter salvage value amount in columns "Retain Machine" and "Replace Machine", use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)
|
Retain Machine |
Replace Machine |
Net IncomeIncrease (Decrease) |
| Operating costs |
$ |
$ |
$ |
| New machine cost |
|
|
|
| Salvage value (old) |
|
|
|
| Total |
$
|
$
|
$
|
The current machine should be replacedretained.