Wildhorse Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Wildhorse Roofing spent $78,600 refurbishing the lift. It has just determined that another $47,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $200,500. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $112,000 to $85,800 each year. Wildhorse Roofing could also rent out the new lift for about $12,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $29,500 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Retain Equipment Operating expenses $ Repair costs Rental revenue New machine cost Sale of old machine Total cost $ Should company repair or replace the equipment? The equipment be replaced. $ Replace Equipment Net Income Increase (Decrease) $ $ $
Wildhorse Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Wildhorse Roofing spent $78,600 refurbishing the lift. It has just determined that another $47,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $200,500. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $112,000 to $85,800 each year. Wildhorse Roofing could also rent out the new lift for about $12,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $29,500 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Retain Equipment Operating expenses $ Repair costs Rental revenue New machine cost Sale of old machine Total cost $ Should company repair or replace the equipment? The equipment be replaced. $ Replace Equipment Net Income Increase (Decrease) $ $ $
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Wildhorse Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for
work on large homes and commercial properties. Last year, Wildhorse Roofing spent $78,600 refurbishing the lift. It has
just determined that another $47,000 of repair work is required. Alternatively, it has found a newer used lift that is for
sale for $200,500. The company estimates that both lifts would have useful lives of 5 years. The new lift is more
efficient and thus would reduce operating expenses from $112,000 to $85,800 each year. Wildhorse Roofing could also
rent out the new lift for about $12,000 per year. The old lift is not suitable for rental. The old lift could currently be sold
for $29,500 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for
another 5 years.
Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter
negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g.
(45).)
Retain
Equipment
Operating
expenses
$
Repair
costs
Rental
revenue
New
machine
cost
Sale of
old
machine
Total cost
$
Should company repair or replace the equipment?
The equipment
be replaced.
$
Replace
Equipment
Net Income
Increase (Decrease)
$
$
$
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