Kenta Electronics purchased a manufacturing plant four years ago for $9,000,000. The plant costs $2,000,000 per year

Question:

Kenta Electronics purchased a manufacturing plant four years ago for $9,000,000. The plant costs $2,000,000 per year to operate. Its current book value using straight-line depreciation is $7,000,000. Kenta could purchase a replacement plant for $16,000,000 that would have a useful life of 10 years. Because of new technology, the replacement plant would require only $600,000 per year in operating expenses. It would have an expected of $4,000,000 after 10 years. The current disposal value of the old plant is $1,200,000, and if Kenta keeps it 10 more years, its residual value would be $300,000.

Required
Based on this information, should Kenta replace the old plant? Support your answer with appropriate computations.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...