Vernon Company is considering the replacement of some of its manufacturing equipment. Information regarding the existing equipment and the potential replacement equipment follows.   Existing Equipment Replacement Equipment Cost $ 110,000   Cost $ 114,000   Operating

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Vernon Company is considering the replacement of some of its manufacturing equipment. Information regarding the existing equipment and the potential replacement equipment follows.
 

Existing Equipment Replacement Equipment
Cost $ 110,000   Cost $ 114,000  
Operating expenses*   105,000   Operating expenses*   112,000  
Salvage value   27,000   Salvage value   13,000  
Market value   41,000   Useful life   8 years
Book value   32,000          
Remaining useful life   8 years        
 


*The amounts shown for operating expenses are the cumulative total of all such expected expenses to be incurred over the useful life of the equipment.

Required
Calculate the total relevant cost of existing equipment and the potential replacement equipment. Should the equipment be replaced?

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