Question: Xu Company is considering replacing one of its manufacturing machines. The machine has a book value of $45,000 and a remaining useful life of 4 years, at which time its salvage value will be zero. It has a current market value of $55,000. Variable manufacturing costs are $34,000 per year for this machine. Information on two alternative replacement machines follows. Should Xu keep or replace its manufacturing machine? If the machine should be replaced, which alternative new machine should Xu purchase?
Alternative A Alternative B
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $115,000 $125,000
Variable manufacturing costs per year. . . . . . . . . . . . . . 22,000 12,000