Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $49,000 and a remaining useful life of four years. It can be sold now for $59,000. Variable manufacturing costs are $43,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Machine A Machine B Purchase price $ 121,000 $ 135,000 Variable manufacturing costs per year 19,000 15,000 (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase?
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $49,000 and a remaining useful life of four years. It can be sold now for $59,000. Variable manufacturing costs are $43,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Machine A Machine B Purchase price $ 121,000 $ 135,000 Variable manufacturing costs per year 19,000 15,000 (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase?
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 13P
Related questions
Question
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $49,000 and a remaining useful life of four years. It can be sold now for $59,000. Variable
| Machine A | Machine B | |
|---|---|---|
| Purchase price | $ 121,000 | $ 135,000 |
| Variable manufacturing costs per year | 19,000 | 15,000 |
- (a) Compute the income increase or decrease from replacing the old machine with Machine A.
- (b) Compute the income increase or decrease from replacing the old machine with Machine B.
- (c) Should Lopez keep or replace its old machine?
- (d) If the machine should be replaced, which new machine should Lopez purchase?
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