Granfield Company has a piece of manufacturing equipment with a book value of $3

Question

Granfield Company has a piece of manufacturing equipment with a book value of $39.500 and a remaining useful life of four years At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $21,900. ld can purchase a new machine for $119,000 and receive $21,900 in return for trading in its old machine. The new machine Granfiel will reduce variable manufacturing costs by $18,900 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

Explanation / Answer

Calculation of Total Increase/Decrease in net income Cost to buy new machine                               $1,19,000 Cash received to trade in old machine    (21,900) Reduction in variable manufacturing cost    (75,600) (18900*4) Total Decrease in netincome                                     $21,500

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