I have a replace or keep question that I am stuck on. I have the answer but don't understand how to get it. It has depreciation in the given numbers and I think that is throwing me. I've never had an accounting course and my experience in my business is limited, so I don't know what to do with it. Keep A or buy B A B Original Cost 10,000 15,000 Annual operating cost 3,500 2,000 Accumulated depreciation 6,000 - Current salvage of A 4,000 - Remaing life in years 5 - Salvage value in 5 years 0 0 Annual depreciation 2,000 3,000 The question is should it be replaced? What are the cash flow savings or additional cost over the 5 years? Ignore income taxes. [the answer is no, additional costs $5000]
I have a replace or keep question that I am stuck on. I have the answer but don't understand how to get it. It has depreciation in the given numbers and I think that is throwing me. I've never had an accounting course and my experience in my business is limited, so I don't know what to do with it. Keep A or buy B A B Original Cost 10,000 15,000 Annual operating cost 3,500 2,000 Accumulated depreciation 6,000 - Current salvage of A 4,000 - Remaing life in years 5 - Salvage value in 5 years 0 0 Annual depreciation 2,000 3,000 The question is should it be replaced? What are the cash flow savings or additional cost over the 5 years? Ignore income taxes. [the answer is no, additional costs $5000]
Chapter1: Financial Statements And Business Decisions
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I have a replace or keep question that I am stuck on. I have the answer but don't understand how to get it. It has
Keep A or buy B
| A | B | |
| Original Cost | 10,000 | 15,000 |
| Annual operating cost | 3,500 | 2,000 |
| 6,000 | - | |
| Current salvage of A | 4,000 | - |
| Remaing life in years | 5 | - |
| Salvage value in 5 years | 0 | 0 |
| Annual depreciation | 2,000 | 3,000 |
The question is should it be replaced? What are the
Expert Solution
Step 1
Make or Buy decision:
It is the decision made based cost-benefit analysis.
The Decision is for whether to manufacture a product/ service or buy it from outside suppliers.
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