Rocko Inc. has a machine with a book value of $50,000 and a five-year remaining life. A new machine is available at a cost of $85,000 and Rocko can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced? a. Yes, because income will increase by $14,000 per year. b. Yes, because income will increase by $23,000 in total. c. No. because the company will be $23,000 worse off in total. d. No. because the income will decrease by $14,000 per year. e. Rocko will be not be better or worse off by replacing the machine.

Rocko Inc. has a machine with a book value of $50,000 and a five-year remaining life. A new machine is available at a cost of $85,000 and Rocko can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced? a. Yes, because income will increase by $14,000 per year. b. Yes, because income will increase by $23,000 in total. c. No. because the company will be $23,000 worse off in total. d. No. because the income will decrease by $14,000 per year. e. Rocko will be not be better or worse off by replacing the machine.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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