A machine purchased three years ago for $313,000 has a current book value using

Question

A machine purchased three years ago for $313,000 has a current book value using straight-line depreciation of $176,000; its operating expenses are $38,000 per year. A replacement machine would cost $221,000, have a useful life of ten years, and would require $12,000 per year in operating expenses. It has an expected salvage value of $71,000 after ten years. The current disposal value of the old machine is $83,000; if it is kept 10 more years, its residual value would be $13,000. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced? Yes No A machine purchased three years ago for $313,000 has a current book value using straight-line depreciation of $176,000; its operating expenses are $38,000 per year. A replacement machine would cost $221,000, have a useful life of ten years, and would require $12,000 per year in operating expenses. It has an expected salvage value of $71,000 after ten years. The current disposal value of the old machine is $83,000; if it is kept 10 more years, its residual value would be $13,000. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced? Yes No A machine purchased three years ago for $313,000 has a current book value using straight-line depreciation of $176,000; its operating expenses are $38,000 per year. A replacement machine would cost $221,000, have a useful life of ten years, and would require $12,000 per year in operating expenses. It has an expected salvage value of $71,000 after ten years. The current disposal value of the old machine is $83,000; if it is kept 10 more years, its residual value would be $13,000. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced? Yes No

Explanation / Answer

The total costs of keeping the old machine and purchasing new machine are calculated with the use of following table:

Based on the above calculations, it can be concluded that the old machine should be replaced as it results in higher total costs of $450,000 when compared with the new machine having total costs of $280,000.

Old Machine New Machine Opportunity Cost 70,000 (83,000 - 13,000) Purchase Value less Salvage Value 150,000 (221,000 - 71,000) Operating Costs 380,000 (38,000*10) 120,000 (12,000*10) Total Costs $450,000 $270,000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.