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Tesla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management was presented with the following information to assist in their decision: • The old machine was purchased three years ago for $318,000 and has a current book value using straight-line depreciation of $191,000. • The old machine incurs operating expenses of $36,000 per year. The current disposal value of the old machine is $82,000; if it is kept nine more years, its remaining value would be $16,000. •The replacement machine would cost $223,000 and have a useful life of nine years. •The replacement machine has an expected salvage value of $70,000 after nine years. •The replacement machine would require $12,000 per year in operating expenses. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced?

Tesla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management was presented with the following information to assist in their decision: • The old machine was purchased three years ago for $318,000 and has a current book value using straight-line depreciation of $191,000. • The old machine incurs operating expenses of $36,000 per year. The current disposal value of the old machine is $82,000; if it is kept nine more years, its remaining value would be $16,000. •The replacement machine would cost $223,000 and have a useful life of nine years. •The replacement machine has an expected salvage value of $70,000 after nine years. •The replacement machine would require $12,000 per year in operating expenses. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Exercise 6-18A (Algo) Asset replacement decision LO 6-5 Tesla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management was presented with the following information to assist in their decision: • The old machine was purchased three years ago for $318,000 and has a current book value using straight-line depreciation of $191,000. • The old machine incurs operating expenses of $36,000 per year. The current disposal value of the old machine is $82,000; if it is kept nine more years, its remaining value would be $16,000. •The replacement machine would cost $223,000 and have a useful life of nine years. •The replacement machine has an expected salvage value of $70,000 after nine years. • The replacement machine would require $12,000 per year in operating expenses. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced?
Transcribed Image Text:Exercise 6-18A (Algo) Asset replacement decision LO 6-5 Tesla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management was presented with the following information to assist in their decision: • The old machine was purchased three years ago for $318,000 and has a current book value using straight-line depreciation of $191,000. • The old machine incurs operating expenses of $36,000 per year. The current disposal value of the old machine is $82,000; if it is kept nine more years, its remaining value would be $16,000. •The replacement machine would cost $223,000 and have a useful life of nine years. •The replacement machine has an expected salvage value of $70,000 after nine years. • The replacement machine would require $12,000 per year in operating expenses. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced?
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