Mountain Gear has been using the same machines to make its name-brand clothing for the last five years. A cost efficiency consultant has suggested that production costs may be reduced by purchasing more technologically advanced machinery. The old machines cost the company $390,000. The old machines presently have a book value of $139,000 and a market value of $31,000. They are expected to have five year remaining life and zero salvage value. The new machines would cost the company $290,000 and have operating expenses of $19,000 a year. The new machines are expected to have a five-year useful life and no salvage value. The operating expenses associated with the old machines are $49,000 a year. The new machines are expected to increase quality, justifying a price increase and thereby increasing sales revenue by $29,000 a year. Select the true statement Multiple Choice The company will be $31,000 better off over the 5 year period if it replaces the old equipment The company will be $36,000 better off over the 5 year period if it replaces the old equipment The compony will be $78,000 better off over the 5 year period if it keeps the old equipment. The company will be $47,000 better off over the 5 year period if it replaces the old equipment.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Transcribed Image Text:Mountain Gear has been using the same machines to make its name-brand clothing for the last five years. A cost efficiency consultant has suggested that production costs may be reduced by purchasing more technologically advanced machinery. The old machines cost the company 5390,000. The old machines presently have a book value of $139,000 and a market value of $31,000. They are expected to have five year remaining life and zero salvage value. The new machines would cost the company $290,000 and have operating expenses of $19,000 a year. The new machines are expected to have a five-year useful life and no salvage value. The operating expenses associated with the old machines are $49,000 a year. The new machines are expected to increase quality, justifying a price increase and thereby increasing sales revenue by $29,000 a year. Select the true statement. Multiple Choice The company will be $31,000 better off over the 5 year period if it replaces the old equipment The company will be $36,000 better off over the 5 year period if it replaces the old equipment The compony will be $78,000 better off over the 5 year period if it keeps the old equipment. The company will be $47,000 better off over the 5 year period if it replaces the old equipment. < Prev 8 of 10 Next >

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions