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 $311,000 has a current book value using straight-line depreciation of $184,000; its operating expenses are $36,000 per year. A replacement machine would cost $223,000, have a useful life of eleven years, and would require $8,000 per year in operating expenses. It has an expected salvage value of $65,000 after eleven years. The current disposal value of the old machine is $73,000; if it is kept eleven more years, its residual value would be $19,000. 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?
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 $311,000 has a current book value using straight-line depreciation of $184,000; its operating expenses are $36,000 per year. A replacement machine would cost $223,000, have a useful life of eleven years, and would require $8,000 per year in operating expenses. It has an expected salvage value of $65,000 after eleven years. The current disposal value of the old machine is $73,000; if it is kept eleven more years, its residual value would be $19,000. 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?
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:
A machine purchased three years ago for $311,000 has a current book value using straight-line depreciation of $184,000; its operating
expenses are $36,000 per year. A replacement machine would cost $223,000, have a useful life of eleven years, and would require
$8,000 per year in operating expenses. It has an expected salvage value of $65,000 after eleven years. The current disposal value of
the old machine is $73,000; if it is kept eleven more years, its residual value would be $19,000.
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?
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