City of Oliver is considering automating a process in its accounting department that has been labor-intensive. The equipment currently used in the department can be sold. The new equipment will have a projected useful life of 10 years. The old equipment has a remaining useful life of 10 years. The following data are available to be used in making the decision. Should the city invest in the new equipment? Support your answer with appropriate calculations. Current equipment Current equipment book value $ 30,000 Annual depreciation charges 3,000 Current estimated disposal value 5,000 New equipment Cost $150,000 Annual depreciation charge 12,500 Expected disposal value 25,000 Labor savings each year $ 50,000 Present value factors @ 6% $1 due in 10 years .55839 Annuity of $1 for 10 years 7.36009
City of Oliver is considering automating a process in its accounting department that has been labor-intensive. The equipment currently used in the department can be sold. The new equipment will have a projected useful life of 10 years. The old equipment has a remaining useful life of 10 years. The following data are available to be used in making the decision. Should the city invest in the new equipment? Support your answer with appropriate calculations.
Current equipment
Current equipment book value $ 30,000
Annual
Current estimated disposal value 5,000
New equipment
Cost $150,000
Annual depreciation charge 12,500
Expected disposal value 25,000
Labor savings each year $ 50,000
Present value factors @ 6%
$1 due in 10 years .55839
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