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 $720,000 and has a current book value using straight-line depreciation of $400,000. • The old machine incurs operating expenses of $60,000 per year. • The current disposal value of the old machine is $170,000; if it is kept nine more years, its remaining value would be $20,000. • The replacement machine would cost $480,000 and have a useful life of nine years. • The replacement machine has an expected salvage value of $130,000 after nine years. • The replacement machine would require $26,000 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? 920,000 $ 584,000 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 $720,000 and has a current book value using straight-line depreciation of $400,000. • The old machine incurs operating expenses of $60,000 per year. • The current disposal value of the old machine is $170,000; if it is kept nine more years, its remaining value would be $20,000. • The replacement machine would cost $480,000 and have a useful life of nine years. • The replacement machine has an expected salvage value of $130,000 after nine years. • The replacement machine would require $26,000 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? 920,000 $ 584,000 Yes
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter10: Long-lived Tangible And Intangible Assets
Section: Chapter Questions
Problem 21E
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Question
![Exercise 6-18A (Static) 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 $720,000 and has a current book value using straight-line depreciation of
$400,000.
• The old machine incurs operating expenses of $60,000 per year.
• The current disposal value of the old machine is $170,000; if it is kept nine more years, its remaining value would be $20,000.
• The replacement machine would cost $480,000 and have a useful life of nine years.
• The replacement machine has an expected salvage value of $130,000 after nine years.
• The replacement machine would require $26,000 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?
920,000 $ 584,000
Yes](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F140da349-159e-45c4-b6c0-d1188d3cb5a6%2Ff356c46a-9c82-43ce-a857-d6cee31fc677%2Fyn5qjql_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 6-18A (Static) 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 $720,000 and has a current book value using straight-line depreciation of
$400,000.
• The old machine incurs operating expenses of $60,000 per year.
• The current disposal value of the old machine is $170,000; if it is kept nine more years, its remaining value would be $20,000.
• The replacement machine would cost $480,000 and have a useful life of nine years.
• The replacement machine has an expected salvage value of $130,000 after nine years.
• The replacement machine would require $26,000 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?
920,000 $ 584,000
Yes
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