Refer to the preceding problem (9-7).
1. Suppose the “decision model” favoured by top management consisted
of a comparison of a three-year accumulation of cash under each alternative.
As the manager of office operations, which alternative would
you choose? Why? ~
2. Suppose the “performance evaluation model” emphasized the minimization
of overall costs of photocopying operations for the first year.
Which alternative would you choose?

Data From Problem 9-7

Consider these data regarding Muskoka County’s photocopying
equipment:

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 three-year useful life. Ignore the effects of
taxes.
1. Tabulate a cost comparison that includes both relevant and irrelevant
items for the next three years together.

2. Tabulate a cost comparison of all relevant items for the next three
years together. Which tabulation is clearer, this one or the one in
requirement 1?
3. Prepare a simple “shortcut’or direct analysis to support your choice
of alternatives.

Transcribed Image Text:

PROPOSED OLD REPLACEMENT EQUIPMENT EQUIPMENT Useful life, in years 5 3 Current age, in years 2 0 Useful life remaining, in year 3 3 Original cost $32,000 $15,000 Accumulated amortization 12,000 0 Book value 18,000 Not acquired yet Disposal value (in cash) now 3,000 Not acquired yet Disposal value in two years 0 0 Annual cash operating costs for power maintenance, toner, and supplies 14,000 7,500