A company purchased manufacturing equipment 5 years ago for $50,000. Book value is currently $5,000 and the remaining useful life is 3 years. The equipment incurs variable manufacturing costs of $30,000. The company is considering replacing the equipment. The new equipment will cost $75,000, have a useful life of 3 years, and is more efficient and, therefore, only costs $10,000 in variable manufacturing costs to operate each year. The vendor is willing to accept the old equipment with a selling price of $20,000. The company should:

Multiple choice question.

a) keep the old equipment because the total net increase in income will be $5,000

b) keep the old equipment because replacing it will decrease income by $5,000 if they purchase the new equipment

c) replace the old equipment because the total net decrease in income will be $5,000

d) replace the old equipment because the total net increase in income will be $5,000