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 $301,000 and has a current book value using straight-line depreciation of $189,000. The old machine incurs operating expenses of $38,000 per year. The current disposal value of the old machine is $78,000; if it is kept nine more years, its remaining value would be $11,000. The replacement machine would cost $238,000 and have a useful life of nine years. The replacement machine has an expected salvage value of $67,000 after nine years. The replacement machine would require $11,000 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? Keep Old Purchase New Machine Machine Total costs Should the old machine be replaced? D
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 $301,000 and has a current book value using straight-line depreciation of $189,000. The old machine incurs operating expenses of $38,000 per year. The current disposal value of the old machine is $78,000; if it is kept nine more years, its remaining value would be $11,000. The replacement machine would cost $238,000 and have a useful life of nine years. The replacement machine has an expected salvage value of $67,000 after nine years. The replacement machine would require $11,000 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? Keep Old Purchase New Machine Machine Total costs Should the old machine be replaced? D
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:
The old machine was purchased three years ago for $301,000 and has a current book value using straight-line depreciation of
$189,000.
The old machine incurs operating expenses of $38,000 per year.
The current disposal value of the old machine is $78,000; if it is kept nine more years, its remaining value would be $11,000.
The replacement machine would cost $238,000 and have a useful life of nine years.
The replacement machine has an expected salvage value of $67,000 after nine years.
The replacement machine would require $11,000 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?
Keep Old
Purchase New
Machine
Machine
Total costs
Should the old machine be replaced?
D
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