Multiple Choice Question 149 Swifty Corporation is contemplating the replacement

Question

Multiple Choice Question 149

Swifty Corporation is contemplating the replacement of an old machine with a new one. The following information has been gathered:

If the old machine is replaced, it can be sold for $24000. The company uses straight-line depreciation with a zero salvage value for all of its assets.

The net advantage (disadvantage) of replacing the old machine is

Old Machine New Machine Price $282000 $582000 Accumulated Depreciation 84600 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $225600 $165600

Explanation / Answer

Purchase price of new machine -582000 Savings in Annual operating costs 600000 =(225600-165600)*10 Salvage value of Old Machine 24000 Net advantage (disadvantage) of replacing the old machine 42000 Option 1 is correct

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