McCoy Company, a Texas-based corporation, paid $120,000 to purchase an air conditioner on January 1, 2007. During

Question:

McCoy Company, a Texas-based corporation, paid $120,000 to purchase an air conditioner on January 1, 2007. During 2017, surging energy costs prompted management to consider replacing the air conditioner with a more energy-efficient model. The new air conditioner would cost $150,000. Electricity for the existing air conditioner costs the company $60,000 per year; the new model would cost only $40,000 per year. The new model, which has an expected useful life of 10 years, would be installed on January 1, 2018. Because the old air conditioner is more durable, McCoy estimates it still has a remaining useful life of 10 years even though it has been used. The current market value of the old air conditioner is $54,000. The expected of both air conditioners is zero.
Required
Based on this information, recommend whether to replace the equipment. Support your recommendation 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...