Janko Wellspring Incorporated has a pump with a book value of $28,000 and a four-year remaining life. A new, more efficient pump is available at a cost of $49,000. Janko can receive $8,400 for trading in the old pump. The old machine has variable manufacturing costs of $29,000 per year. The new pump will reduce variable costs by $11,300 per year over its four-year life. Should the pump be replaced? Multiple Choice O No, because the company will be $4,600 worse off in total. Yes, because income will increase by $4,600 per year.

Janko Wellspring Incorporated has a pump with a book value of $28,000 and a four-year remaining life. A new, more efficient pump is available at a cost of $49,000. Janko can receive $8,400 for trading in the old pump. The old machine has variable manufacturing costs of $29,000 per year. The new pump will reduce variable costs by $11,300 per year over its four-year life. Should the pump be replaced? Multiple Choice O No, because the company will be $4,600 worse off in total. Yes, because income will increase by $4,600 per year.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

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ISBN:9781337514835

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Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 13P

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Janko Wellspring Incorporated has a pump with a book value of $28,000 and a four-year remaining life. A new, more
efficient pump is available at a cost of $49,000. Janko can receive $8,400 for trading in the old pump. The old machine
has variable manufacturing costs of $29,000 per year. The new pump will reduce variable costs by $11,300 per year over
its four-year life. Should the pump be replaced?
Multiple Choice
No, because the company will be $4,600 worse off in total.
Yes, because income will increase by $4,600 per year.
No lankn will record a loss of $16,800 if they replace the pump.

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