Because of rapidly advancing technology, Sayre Publications Inc. is considering replacing its existing typesetting machine with leased equipment. The old machine, purchased two years ago, has an expected useful life of six years and is in good condition. Apparently, it will continue to perform as expected for the remaining four years of its expected useful life. A four-year lease for equipment with comparable productivity can be obtained for \($15,000\) per year. The following data apply to the old machine.

Required:

a. Determine the annual opportunity cost of using the old machine. Based on your computations, recommend whether to replace it.

b. Determine the total cost of the lease over the four-year contract. Based on your computations, recommend whether to replace the old machine.

Transcribed Image Text:

Original cost $180,000 Accumulated depreciation 60,000 Current market value 77,500 Estimated salvage value 7,500