Hill Lumber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable, resulting in significant downtime and wasted labor costs. Management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines:

It is estimated that the new machine will produce annual cost savings of $107,000. The old machine can be sold to a scrap dealer for $11,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives.
Instructions
Determine whether the company should purchase the new machine.

Transcribed Image Text:

Old Machine New Machine Original purchase cost Accumulated depreciation $325,000 230,000 S405,000 Estimated life 4 years 4 years