=+8-27 KKK Relevance of equipment costs OBJECTIVES 2, 7 The Auto Wash Company has just today paid for and installed a special machine for polishing cars at one of its several outlets. It is the first day of the company’s financial year. The machine costs $20000. Its annual cash operating costs total $15000. The machine will have a four-year useful life and a zero terminal disposal value.

After the machine has been used for only one day, a salesperson offers a different machine that promises to do the same job at annual cash operating costs of $9000. The new machine will cost $24000 cash, installed. The ‘old’ machine is unique and can be sold outright for only $10000, minus $2000 removal cost. The new machine, like the old one, will have a four-year useful life and zero terminal disposal value.

Revenues, all in cash, will be $150000 annually, and other cash costs will be $110000 annually, regardless of this decision.

For simplicity, ignore income taxes and the time value of money.