Hondo Company has a machine with a book value of $50,000 and a five year remaini

Question

Hondo Company has a machine with a book value of $50,000 and a five year remaining life. A new machine is available at a cost of $108,000 and Rocko can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five year life. Should the machine be replaced? A.No, because the company will be $108,000 worse off. B.Yes, because income will increase by $14,000 per year. C.Yes, because income will increase by $52,000 immediately. D.No, because the income will decrease by $14,000 per year. E.Hondo will not be better or worse off by replacing the machine.

Explanation / Answer

E.Hondo will not be better or worse off by replacing the machine.

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