old Equipment New Equipment Original cost $770,000 $871,200 Remaining life 5 years 5 years Accumulated depreciation $347,600 $0 Annual cash operating costs $140,800 $35,200 Current salvage value $193,600 NA Salvage value in five years $0 $0

old Equipment New Equipment Original cost $770,000 $871,200 Remaining life 5 years 5 years Accumulated depreciation $347,600 $0 Annual cash operating costs $140,800 $35,200 Current salvage value $193,600 NA Salvage value in five years $0 $0

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section9.A: Depreciation

Problem 2P

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Question

Certain production equipment used by Dayton Mechanical has become obsolete relative to current technology. The company is considering whether it should keep or replace its existing equipment. To aid in this decision, the company’s controller gathered the following data: (See attached)

c. What is the total dollar amount of all relevant costs to the equipment replacement decision. $______

d. What is the total dollar amount of the opportunity costs associated with the alternative of keeping the old equipment? $______

old Equipment New Equipment
Original cost
$770,000
$871,200
Remaining
life
5 years
5 years
Accumulated
depreciation
$347,600
$0
Annual cash
operating
costs
$140,800
$35,200
Current
salvage
value
$193,600
NA
Salvage
value in five
years
$0
$0

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