Rory Company has an old machine with a book value of $77,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $105,000. Rory can sell its old machine now for $79,000. The old machine has variable manufacturing costs of $32,000 per year. The new machine will reduce variable manufacturing costs by $12,800 per year over its five-year useful life. (a) Prepare a keep or replace analysis of income effects for the machines. (b) Should the old machine be replaced? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a keep or replace analysis of income effects for the machines. Keep or Replace Analysis Revenues Sale of existing machine Costs Purchase of new machine Variable manufacturing costs Income (loss) $ $ $ Keep 0 $ 0 160,000 Replace 79,000 105,000 96,000 Income Increase (Decrease) if replaced $ 38,000
Rory Company has an old machine with a book value of $77,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $105,000. Rory can sell its old machine now for $79,000. The old machine has variable manufacturing costs of $32,000 per year. The new machine will reduce variable manufacturing costs by $12,800 per year over its five-year useful life. (a) Prepare a keep or replace analysis of income effects for the machines. (b) Should the old machine be replaced? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a keep or replace analysis of income effects for the machines. Keep or Replace Analysis Revenues Sale of existing machine Costs Purchase of new machine Variable manufacturing costs Income (loss) $ $ $ Keep 0 $ 0 160,000 Replace 79,000 105,000 96,000 Income Increase (Decrease) if replaced $ 38,000
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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