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Falk Inc. has a machine with a book value of $50,000 and a five-year remaining life. A new machine is available at a cost of $85,000 and Falk can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced? yes, because income will increase by $14,000 per year yes, because income will increase by $23,000 in total no, because the company will be $23,000 worse off in total no, because the income will decrease by $27,000 per year

Falk Inc. has a machine with a book value of $50,000 and a five-year remaining life. A new machine is available at a cost of $85,000 and Falk can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced? yes, because income will increase by $14,000 per year yes, because income will increase by $23,000 in total no, because the company will be $23,000 worse off in total no, because the income will decrease by $27,000 per year

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Falk Inc. has a machine with a book value of $50,000 and a five-year remaining life. A new machine is available at a cost of $85,000 and Falk can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced? O yes, because income will increase by $14,000 per year yes, because income will increase by $23,000 in total O no, because the company will be $23,000 worse off in total O no, because the income will decrease by $27,000 per year
Transcribed Image Text:Falk Inc. has a machine with a book value of $50,000 and a five-year remaining life. A new machine is available at a cost of $85,000 and Falk can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced? O yes, because income will increase by $14,000 per year yes, because income will increase by $23,000 in total O no, because the company will be $23,000 worse off in total O no, because the income will decrease by $27,000 per year
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