Geiger Company is considering the replacement of equipment used in operations. T
ID: 2352219 • Letter: G
Question
Geiger Company is considering the replacement of equipment used in operations. The following data are available:Old Equipment New Equipment
Original cost $210,000 $40,000
Useful life in years 12 7
Current age in years 5 0
Book value $65,000 -
Disposal value now $30,000 -
Disposal value in 7 years 0 0
Annual cash operating costs $10,000 $9,000
Required:
A) Prepare a cost comparison for replacing the old equipment. Use only relevant items and add the items together for the next 7 years.
B) Should the old equipment be replaced?
Explanation / Answer
retain
replace
net income incease/(decrease)
new machine cost
0
40000
-40000
disposal value of old machine
0
30000
30000
annual operating costs
70000
63000
7000
total
70000
133000
-3000
b. No, they would lose money.
retain
replace
net income incease/(decrease)
new machine cost
0
40000
-40000
disposal value of old machine
0
30000
30000
annual operating costs
70000
63000
7000
total
70000
133000
-3000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.