Question: Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing. Original purchase cost Accumulated depreciation Current Machine New Machine $15,000 $25,000 $6,000 $20,000 5 years 5 years Estimated annual operating costs $25,000 Useful life If sold now, the current machine would have a salvage value of $6,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years. Should the current machine be replaced?
Question: Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing. Original purchase cost Accumulated depreciation Current Machine New Machine $15,000 $25,000 $6,000 $20,000 5 years 5 years Estimated annual operating costs $25,000 Useful life If sold now, the current machine would have a salvage value of $6,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years. Should the current machine be replaced?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question:
Johnson Enterprises uses a computer to handle its sales invoices. Lately,
business has been so good that it takes an extra 3 hours per night, plus every
third Saturday, to keep up with the volume of sales invoices. Management is
considering updating its computer with a faster model that would eliminate all of
the overtime processing.
Original purchase cost
Accumulated depreciation
Current Machine New Machine
$15,000
$25,000
$6,000
$20,000
5 years
5 years
Estimated annual operating costs $25,000
Useful life
If sold now, the current machine would have a salvage value of $6,000. If operated
for the remainder of its useful life, the current machine would have zero salvage
value. The new machine is expected to have zero salvage value after 5 years.
Should the current machine be replaced?
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