Janko Wellspring Incorporated has a pump with a book value of $25,000 and a four-year remaining life. A new, more efficient pump is available at a cost of $46,000. Janko can receive $8,100 for trading in the old pump. The old machine has variable manufacturing costs of $26,000 per year. The new pump will reduce variable costs by $10,100 per year over its four-year life. Should the pump be replaced? Multiple Choice Yes, because income will increase by $2,500 in total. Yes, because income will increase by $2,500 per year. No, because the company will be $2,500 worse off in total. No, because income will decrease by $10,100 per year. No, Janko will record a loss of $16,200 if they replace the pump.
Janko Wellspring Incorporated has a pump with a book value of $25,000 and a four-year remaining life. A new, more efficient pump is available at a cost of $46,000. Janko can receive $8,100 for trading in the old pump. The old machine has variable manufacturing costs of $26,000 per year. The new pump will reduce variable costs by $10,100 per year over its four-year life. Should the pump be replaced? Multiple Choice Yes, because income will increase by $2,500 in total. Yes, because income will increase by $2,500 per year. No, because the company will be $2,500 worse off in total. No, because income will decrease by $10,100 per year. No, Janko will record a loss of $16,200 if they replace the pump.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Kk.314.
Transcribed Image Text:Janko Wellspring Incorporated has a pump with a book value of $25,000 and a four-year remaining life. A
new, more efficient pump is available at a cost of $46,000. Janko can receive $8,100 for trading in the old
pump. The old machine has variable manufacturing costs of $26,000 per year. The new pump will reduce
variable costs by $10,100 per year over its four-year life. Should the pump be replaced?
Multiple Choice
Yes, because income will increase by $2,500 in total.
Yes, because income will increase by $2,500 per year.
No, because the company will be $2,500 worse off in total.
No, because income will decrease by $10,100 per year.
No, Janko will record a loss of $16,200 if they replace the pump.
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