Wally Lewis is manager of the engineering development division of Goldcoast Products. Lewis has just received a proposal signed by his engineers to replace workstations with networked personal computers (networked PCs). Lewis is not enthusiastic about the proposal. Data on workstations and networked PCs are as follows:

Lewis’s annual bonus includes a component based on division operating income. He has a promotion possibility next year to become a group vice president of Goldcoast Products.

Required:

1. Compare the costs of workstations and networked PCs. Consider the cumulative results for the 3 years together, ignoring the time value of money and income taxes.
2. Why might Lewis be reluctant to purchase the networked PCs?

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Original cost Useful life Current age Remaining useful life Accumulated depreciation Current book value Current disposal value (in cash) Terminal disposal value (in cash 3 years from now) Annual computer-related cash operating costs Annual revenues Annual non-computer-related cash operating costs Workstations $ 300,000 5 years 2 years 3 years $ 120,000 $ 180,000 $ 95,000 $ 0 $ 40,000 $1,000,000 $ 880,000 Networked PCs $ 135,000 3 years 0 years 3 years Not acquired yet Not acquired yet Not acquired yet $ 0 $ 10,000 $1,000,000 $ 880,000