Franklin Company is contemplating the replacement of an old machine with a new o

Question

Franklin Company 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 $3,900. Both the old equipment and new equipment have a useful life of 10 years.

What is the net advantage (disadvantage) of replacing the old machine with the new machine?

Old Machine New Machine Purchase price $8,000 $2,400 Accumulated depreciation $5,300 - 0 - Annual operating costs $3,500 $5,500 Remaining useful life 10 years 10 years

Explanation / Answer

Old Machine New Machine Annual operating costs $35,000 $55,000 Purchase price $2,400 Sales Price ($3,900) Total Cost $35,000 $53,500 Disadvantage of replacing the old machine with the new machine $18,500

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