Marlow Manufacturing is considering the replacement of a piece of equipment with

Question

Marlow Manufacturing is considering the replacement of a piece of equipment with a newer model. The following data has been collected: 5. Old Equipment New Equipment $375,000 Purchase price Accumulated depreciation Annual operating costs $225,000 90,000 300,000 0 240,000 If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. Prepare an analysis to determine the incremental net income or (loss) that would result from replacing the old equipment.

Explanation / Answer

Old equipment New equipment Difference Purchase cost 375000 -375000 Annual operating costs 1500000 1200000 300000 Salvage value of old equipment -60000 60000 Total costs 1500000 1515000 -15000 Replacing equipment will result in $15000 net loss

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