Question
A Lab is considering either repairing one of its machines or replacing it. The cost of repairing the old machine is estimated at $13,000 to
A Lab is considering either repairing one of its machines or replacing it. The cost of repairing the old machine is estimated at $13,000 to make it reliable again. The lab manager is suggesting to buy a new machine which he estimates its cost at $25,000 cash. The following are the estimated costs for the two alternatives: Repair the old machine Purchase a new machine Book Value of old $ 15,000 Original Cost of new machine $ 22,000 Cost of repair the old $ 13,000 Annual running costs $ 10,000 $ 8,000 Remaining useful life 6 years 6 years What should the lab manager do? a. Repair the existing machine because it saves $3,000 b. Repair the existing machine because its book value is higher than its cost of repair. c. Purchase the new lab machine because he saves $3,000 d. Purchase the new lab machine because it saves $5,000
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