The Canton Movie Theatre is considering selling its old popcorn machine and repl

Question

The Canton Movie Theatre is considering selling its old popcorn machine and replacing it with a newer one. The old machine originally cost $5,000 and has been fully depreciated. Annual costs are $4,000. Canton high school is willing to buy it for $1,000. New equipment would cost $18,000 and annual operating costs would be $1,500. The new machine has an estimated useful life of 5 years, and the old machine will last another 5 years.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

           Please prepare a proposal and determine if we should replace the old equipment.

Explanation / Answer

Hi,

Please find the answer as follows:

Total Cost of Old Machine= 4000*5 = 20000

Total Cost of New Machine = (18000 -2000) + 1500*5 = 23500

Net Cost Savings with Old Machine = 23500 - 20000 = 3500

Therefore, the old machine should not be replaced with the new machine.

Thanks.

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