Assume Urgent Care paid $42,000 for X-ray equipment four years ago. The equipment was expected to have a useful life of 10 years from the date of acquisition with annual operating costs of $25,000. Technological advances have made the machine purchased four years ago obsolete with a zero salvage value. An improved X-ray device incorporating the new technology is available at an initial cost of $50,000 and annual operating costs of $15,000. The new machine is expected to last only six years before it, too, is obsolete. Asked to analyze the financial aspects of replacing the obsolete but still functional machine, an Urgent Care accountant prepared the following analysis. After looking over these numbers, the company's manager rejected the proposal. Perform an analysis of relevant costs to determine whether the manager made the correct decision. Cost of new machine Advantage (disadvantage) of replacement. . 50,000) 15$15, 200 Six-year savings [($25,000 - $15,000) x 6] Cost of new machine .... Undepreciated cost of old machine [($42,000/10) × 6]. Advantage (disadvantage) of replacement.. $ 60,000 (50,000) 25,200 $ 15,200
Assume Urgent Care paid $42,000 for X-ray equipment four years ago. The equipment was expected to have a useful life of 10 years from the date of acquisition with annual operating costs of $25,000. Technological advances have made the machine purchased four years ago obsolete with a zero salvage value. An improved X-ray device incorporating the new technology is available at an initial cost of $50,000 and annual operating costs of $15,000. The new machine is expected to last only six years before it, too, is obsolete. Asked to analyze the financial aspects of replacing the obsolete but still functional machine, an Urgent Care accountant prepared the following analysis. After looking over these numbers, the company's manager rejected the proposal. Perform an analysis of relevant costs to determine whether the manager made the correct decision. Cost of new machine Advantage (disadvantage) of replacement. . 50,000) 15$15, 200 Six-year savings [($25,000 - $15,000) x 6] Cost of new machine .... Undepreciated cost of old machine [($42,000/10) × 6]. Advantage (disadvantage) of replacement.. $ 60,000 (50,000) 25,200 $ 15,200
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Assume Urgent Care paid $42,000 for X-ray equipment four years ago. The equipment was expected to have a useful life of 10 years from the date of acquisition with annual operating costs of $25,000. Technological
advances have made the machine purchased four years ago obsolete with a zero salvage value. An improved X-ray device incorporating the new technology is available at an initial cost of $50,000 and annual
operating costs of $15,000. The new machine is expected to last only six years before it, too, is obsolete. Asked to analyze the financial aspects of replacing the obsolete but still functional machine, an Urgent Care
accountant prepared the following analysis. After looking over these numbers, the company's manager rejected the proposal.
Perform an analysis of relevant costs to determine whether the manager made the correct decision. Cost of new machine
Advantage (disadvantage) of replacement. .
50,000)
15$15, 200
![Six-year savings [($25,000 - $15,000) x 6]
Cost of new machine ....
Undepreciated cost of old machine [($42,000/10) × 6].
Advantage (disadvantage) of replacement..
$ 60,000
(50,000)
25,200
$ 15,200](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7ec441a8-b95f-4213-92a3-3d5240632ef7%2F15b620a2-7cb8-4cb5-92ee-20c5e5c1e400%2F6ttwrko_processed.png&w=3840&q=75)
Transcribed Image Text:Six-year savings [($25,000 - $15,000) x 6]
Cost of new machine ....
Undepreciated cost of old machine [($42,000/10) × 6].
Advantage (disadvantage) of replacement..
$ 60,000
(50,000)
25,200
$ 15,200
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