Refer to the facts in Problem 14-45. Assume that Pitt’s performance measurement and bonus plans are based on residual income instead of ROI. Pitt uses a cost of capital of 12 percent in computing residual income.

Required
a. When would Oscar want to purchase the new machine if he waits until next year?
b. What are the costs that must be considered in making this decision?

Data From Exercise 14-45:

Assume that Pitt’s performance measurement and bonus plans are based on residual income instead of ROI. Pitt uses a cost of capital of 12 percent in computing residual income.