2. DBO Manufacturing is deciding whether to keep or replace an old machine. DBO Manufacturing uses straight-line depreciation. Ignore the time value of money and income taxes. Should DBO Manufacturing replace the old machine? Explain. Begin by calculating the total relevant costs.

	Old Machine				New Machine
Original cost		$10,500				$9,000
Useful life		12	years			5	Years
Current age		7	years			0	Years
Remaining useful life		5	years			5	Years
Accumulated depreciation		$6,125			Not acquired yet
Book value		$4,375			Not acquired yet
Current disposal value (in cash)		$2,700			Not acquired yet
Terminal disposal value (5 years from now)		$0				$0
Annual cash operating costs		$17,500				$16,000

	Keep	Replace	Difference

Explain: