Oriole Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Oriole Roofing spent $68,400 refurbishing the lift. It has just determined that another $33,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $139,500. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $95,000 to $72,200 each year. Oriole Roofing could also rent out the new lift for about $8,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $20,500 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Operating expenses $ Repair costs Rental revenue New machine cost Sale of old machine Total cost $ The equipment should Retain Equipment 475000 i 33000 i 508000 Should company repair or replace the equipment? be replaced. 0 0 $ Replace Equipment 361000 i 8000 139500 0 (20500) i i 488000 $ $ Net Income Increase (Decrease) 114000 33000 (8000) 170 (139500) 20500 20000
Oriole Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Oriole Roofing spent $68,400 refurbishing the lift. It has just determined that another $33,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $139,500. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $95,000 to $72,200 each year. Oriole Roofing could also rent out the new lift for about $8,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $20,500 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Operating expenses $ Repair costs Rental revenue New machine cost Sale of old machine Total cost $ The equipment should Retain Equipment 475000 i 33000 i 508000 Should company repair or replace the equipment? be replaced. 0 0 $ Replace Equipment 361000 i 8000 139500 0 (20500) i i 488000 $ $ Net Income Increase (Decrease) 114000 33000 (8000) 170 (139500) 20500 20000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Oriole Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes
and commercial properties. Last year, Oriole Roofing spent $68,400 refurbishing the lift. It has just determined that another $33,000
of repair work is required. Alternatively, it has found a newer used lift that is for sale for $139,500. The company estimates that both
lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $95,000 to
$72,200 each year. Oriole Roofing could also rent out the new lift for about $8,000 per year. The old lift is not suitable for rental. The
old lift could currently be sold for $20,500 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of
zero if used for another 5 years.
Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using
either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Operating expenses $
Repair costs
Rental revenue
New machine cost
Sale of old machine
Total cost
$
The equipment should
Retain
Equipment
475000
33000 i
Should company repair or replace the equipment?
be replaced.
0
0
508000 i
0
$
$
Replace
Equipment
361000 i
0
8000
139500 i
(20500)
488000
$
$
Net Income
Increase (Decrease)
114000
33000
(8000)
(139500)
20500
20000
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