Granfield Company has a piece of manufacturing equipment with a book value of $35,500 and a remaining useful life of four years. At the end of the four years, the equipment will have a zero salvage value. The market value of the equipment is currently $21,100. Granfield can purchase a new machine for $111,000 and receive $21,100 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $18,100 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is: a. $17,500 increase. b. $72,400 decrease. c. $14,400 decrease. d. $48,850 increase. e. $17,500 decrease.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...
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Granfield Company has a piece of manufacturing equipment with a book value
of $35,500 and a remaining useful life of four years. At the end of the four years,
the equipment will have a zero salvage value. The market value of the equipment
is currently $21,100. Granfield can purchase a new machine for $111,000 and
receive $21,100 in return for trading in its old machine. The new machine will
reduce variable manufacturing costs by $18,100 per year over the four-year life
of the new machine.
The total increase or decrease in net income by replacing the current machine
with the new machine (ignoring the time value of money) is:
a. $17,500 increase.
b. $72,400 decrease.
c. $14,400 decrease.
d. $48,850 increase.
e. $17,500 decrease.
Transcribed Image Text:Granfield Company has a piece of manufacturing equipment with a book value of $35,500 and a remaining useful life of four years. At the end of the four years, the equipment will have a zero salvage value. The market value of the equipment is currently $21,100. Granfield can purchase a new machine for $111,000 and receive $21,100 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $18,100 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is: a. $17,500 increase. b. $72,400 decrease. c. $14,400 decrease. d. $48,850 increase. e. $17,500 decrease.
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