(Asset-replacement decision) The manager, Diane Blocker, of the Plastics Fabri¬ cation Division of Balsom Chemical Corporation, has heard about a new ex¬ truding machine on the market that could replace one of her existing machines. The manufacturer has suggested to Ms. Blocker that the new machine would save $200,000 per year in the costs of operations. Ms. Blocker’s controller com¬ piled additional information as follows.

a. Based on financial considerations alone, should Ms. Blocker purchase the new machine? Show computations to support your answer.

b. What qualitative factors should Ms. Blocker consider before making a de¬ cision about purchasing the new machine?LO1

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OLD MACHINE: Original cost new $750,000 Present book value 500,000 Annual cash operating costs 500,000 Market value now 100,000 Market value in 5 years 0 Remaining useful life 5 years NEW MACHINE: Cost $900,000 Annual cash operating costs 300,000 Market value in 5 years 0 Useful life 5 years