Rory Company has an old machine with a book value of $83,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $112,000. Rory can sell its old machine now for $86,000. The old machine has variable manufacturing costs of $40,000 per year. The new machine will reduce variable manufacturing costs by $16,000 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 $ Replace 86,000 112,000 Income Increase (Decrease) if replaced
Rory Company has an old machine with a book value of $83,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $112,000. Rory can sell its old machine now for $86,000. The old machine has variable manufacturing costs of $40,000 per year. The new machine will reduce variable manufacturing costs by $16,000 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 $ Replace 86,000 112,000 Income Increase (Decrease) if replaced
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Rory Company has an old machine with a book value of $83,000 and a remaining five-year useful life. Rory is considering purchasing a
new machine at a price of $112,000. Rory can sell its old machine now for $86,000. The old machine has variable manufacturing costs
of $40,000 per year. The new machine will reduce variable manufacturing costs by $16,000 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
$
Replace
86,000
112,000
Income Increase
(Decrease) if replaced
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