Starling Co. is considering disposing of a machine with a book value of $12,500

Question

Starling Co. is considering disposing of a machine with a book value of $12,500 and estimated remaining life of five years. The old machine can be sold for $1,500. A new high-speed machine can be purchased at a cost of $25,000. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $26,000 to $23,500 if the new machine is purchased. The total net differential increase or decrease in cost for the new equipment for the entire five years is: Answer
decrease of $11,000
decrease of $15,000
increase of $11,000
increase of $15,000 (My guess)
Starling Co. is considering disposing of a machine with a book value of $12,500 and estimated remaining life of five years. The old machine can be sold for $1,500. A new high-speed machine can be purchased at a cost of $25,000. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $26,000 to $23,500 if the new machine is purchased. The total net differential increase or decrease in cost for the new equipment for the entire five years is: Starling Co. is considering disposing of a machine with a book value of $12,500 and estimated remaining life of five years. The old machine can be sold for $1,500. A new high-speed machine can be purchased at a cost of $25,000. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $26,000 to $23,500 if the new machine is purchased. The total net differential increase or decrease in cost for the new equipment for the entire five years is: decrease of $11,000 decrease of $15,000 increase of $11,000 increase of $15,000 (My guess)

decrease of $11,000
decrease of $15,000
increase of $11,000
increase of $15,000 (My guess)

Explanation / Answer

Total net differential increase or decrease in cost for the new equipment for the entire five years =25000- (26000-23500)*5-1500 = 11000

answer:

increase of $11,000

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