Consider the data regarding Douglas County’s photocopying requirements below. The county administrator is trying to decide whether to replace the old equipment. Because of rapid changes in technology, she expects the replacement equipment to have only a 3-year useful life. Ignore the effects of taxes.

1. Prepare a schedule that compares both relevant and irrelevant items for the next 3 years.

( See Exhibit 6.5, p. 249.)

Exhibit 6.5

2. Prepare a schedule that compares all relevant items for the next 3 years. Which tabulation is clearer, this one or the one in requirement 1? (Hint: See Exhibit 6.6, p. 251.)

Exhibit 6.6

3. Prepare a simple ‘shortcut’ or direct analysis to support your choice of alternatives.

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Cash operating costs Old equipment (book value) Periodic write-off as depreciation or Lump-sum write-off Disposal value New machine Acquisition cost Total costs Four years together Keep €20,000 4,000 €24,000 Replace €12,000 4,000 -2,500* 8,000¹ €21,500 Difference €8,000 2,500 -8,000 €2,500 The advantage of replacement is €2,500 for the 4 years together. *In a formal income statement, these two items would be combined as "loss on disposal' of €4,000 - €2,500 = €1,500. "In a formal income statement, written off as straight-line depreciation of €8,000 + 4 = €2,000 for each of 4 years.