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 $113,000. Rory can sell its old machine now for $66,000. The old machine has variable manufacturing costs of $41,000 per year. The new machine will reduce variable manufacturing costs by $16,400 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
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 $113,000. Rory can sell its old machine now for $66,000. The old machine has variable manufacturing costs of $41,000 per year. The new machine will reduce variable manufacturing costs by $16,400 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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 $113,000. Rory can sell its old machine now for $66,000. The old machine has variable manufacturing costs
of $41,000 per year. The new machine will reduce variable manufacturing costs by $16,400 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
<Required A
Replace
Income Increase
(Decrease) if replaced
Required B >
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