Fire company's plant manager is considering whether to buy a new welding robot to replace an old welding robot or overhauling the old welding robot to extend its useful life for 5 more years. The new robot would have a useful life of 5 years. The following information is available: Old welding robot: Original cost- $50,000 Accumulated depreciation- $40,000 Estimated annual operating costs after overhaul- $15,000 Current salvage value- $3,000 Cost of overhaul- $18,000 Salvage value in 10 years- $1,800 New welding robot: Cost- $72,000 Estimated annual operating costs- $8,000 Salvage value at the end of 5 years- $9,000 1. Determine the 5 year cost of overhauling and continuing to use the old robot 2. Determine the 5 year cost of replacing the old robot with the new robot 3. Identify two qualitative aspects management should consider before making their decision.
Fire company's plant manager is considering whether to buy a new welding robot to replace an old welding robot or overhauling the old welding robot to extend its useful life for 5 more years. The new robot would have a useful life of 5 years. The following information is available:
Old welding robot:
Original cost- $50,000
Estimated annual operating costs after overhaul- $15,000
Current salvage value- $3,000
Cost of overhaul- $18,000
Salvage value in 10 years- $1,800
New welding robot:
Cost- $72,000
Estimated annual operating costs- $8,000
Salvage value at the end of 5 years- $9,000
1. Determine the 5 year cost of overhauling and continuing to use the old robot
2. Determine the 5 year cost of replacing the old robot with the new robot
3. Identify two qualitative aspects management should consider before making their decision.
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