1) Sandhill Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing.

		Current Machine			New Machine
Original purchase cost		$14,500			$25,300
Accumulated depreciation		$5,500			_
Estimated annual operating costs		$24,800			$19,700
Remaining useful life		5 years			5 years

If sold now, the current machine would have a salvage value of $9,800. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years. Prepare an incremental analysis to determine whether the current machine should be replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Retain Machine		Replace Machine		Net Income Increase (Decrease)
Operating costs		$____________		$____________		$____________
New machine cost		$____________		$____________		$____________
Salvage value (old)		$____________		$____________		$____________
Total		$____________		$____________		$____________

2)Vaughn Manufacturing is contemplating the replacement of an old machine with a new one. The following information has been gathered:

	Old Machine		New Machine
Price	$290000		$580000
Accumulated Depreciation	87000		-0-
Remaining useful life	10 years		-0-
Useful life	-0-		10 years
Annual operating costs	$232000		$174000

If the old machine is replaced, it can be sold for $23200. The company uses straight-line depreciation with a zero salvage value for all of its assets. Which of the following amounts is relevant to the replacement decision?

$87000

$58000

$290000

$23200