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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 $303,000 and has a current book value using straight-line depreciation of $187,000. • The old machine incurs operating expenses of $33,000 per year. • The current disposal value of the old machine is $90,000; if it is kept nine more years, its remaining value would be $13,000. • The replacement machine would cost $236,000 and have a useful life of nine years. • The replacement machine has an expected salvage value of $80,000 after nine years. The replacement machine would require $10,000 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 Machine Purchase New Machine Total costs $ Should the old machine be replaced? 407,000 $ 246,000 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: • The old machine was purchased three years ago for $303,000 and has a current book value using straight-line depreciation of $187,000. • The old machine incurs operating expenses of $33,000 per year. • The current disposal value of the old machine is $90,000; if it is kept nine more years, its remaining value would be $13,000. • The replacement machine would cost $236,000 and have a useful life of nine years. • The replacement machine has an expected salvage value of $80,000 after nine years. The replacement machine would require $10,000 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 Machine Purchase New Machine Total costs $ Should the old machine be replaced? 407,000 $ 246,000 Yes

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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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 $303,000 and has a current book value using straight-line depreciation of $187,000. • The old machine incurs operating expenses of $33,000 per year. • The current disposal value of the old machine is $90,000; if it is kept nine more years, its remaining value would be $13,000. • The replacement machine would cost $236,000 and have a useful life of nine years. • The replacement machine has an expected salvage value of $80,000 after nine years. • The replacement machine would require $10,000 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 Machine Total costs Should the old machine be replaced? Purchase New Machine $ 407,000 $ 246,000 Yes
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 $303,000 and has a current book value using straight-line depreciation of $187,000. • The old machine incurs operating expenses of $33,000 per year. • The current disposal value of the old machine is $90,000; if it is kept nine more years, its remaining value would be $13,000. • The replacement machine would cost $236,000 and have a useful life of nine years. • The replacement machine has an expected salvage value of $80,000 after nine years. • The replacement machine would require $10,000 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 Machine Total costs Should the old machine be replaced? Purchase New Machine $ 407,000 $ 246,000 Yes
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