Young Entertainment Enterprises is considering replacing the latex molding machi
ID: 2639089 • Letter: Y
Question
Young Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but Young can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year, using the straight-line method.
The new machine has a purchase price of $775,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $185,000 will be realized if the new machine is installed. The company
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