5)

Granfield Company has a piece of manufacturing equipment with a book value of $35,000 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $21,000. Granfield can purchase a new machine for $110,000 and receive $21,000 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $18,000 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

Multiple Choice

• $17,000 increase
• $72,000 decrease
• $14,000 decrease
• $48,500 increase
• $17,000 decrease