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 A machine purchased three years ago for $305,000 has a current book value using straight-line depreciation of $186,000, its operating expenses are $36,000 per year. A replacement machine would cost $228,000, have a useful life of nine years, and would require $8,000 per year in operating expenses. It has an expected salvage value of $79.000 after nine years. The current disposal value of the old machine is $87,000, if it is kept nine more years, its residual value would be $12,000, Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced? Keep Old Machine Total costs $ 399,000 Should the old machine be replaced? Purchase New Machine Yes
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 A machine purchased three years ago for $305,000 has a current book value using straight-line depreciation of $186,000, its operating expenses are $36,000 per year. A replacement machine would cost $228,000, have a useful life of nine years, and would require $8,000 per year in operating expenses. It has an expected salvage value of $79.000 after nine years. The current disposal value of the old machine is $87,000, if it is kept nine more years, its residual value would be $12,000, Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced? Keep Old Machine Total costs $ 399,000 Should the old machine be replaced? Purchase New Machine Yes
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text: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
A machine purchased three years ago for $305,000 has a current book value using straight-line depreciation of $186,000, its
operating expenses are $36,000 per year. A replacement machine would cost $228,000, have a useful life of nine years, and would
require $8,000 per year in operating expenses. It has an expected salvage value of $79,000 after nine years. The current disposal
value of the old machine is $87,000, if it is kept nine more years, its residual value would be $12,000.
Required
Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced?
Keep Old
Machine
$ 399,000
Total costs.
Should the old machine be replaced?
Purchase New
Machine
Yes
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