A machine purchased three years ago for $305,000 has a current book value using straight-linedepreciation of $181,000; its operating expenses are $36,000 per year. A replacement machine would cost $231,000, have a useful life of ten years, and would require $8,000 per year in operating expenses. It has an expected salvage value of $81,000 after ten years. The current disposal value of the old machine is $89,000; if it is kept 10 more years, its residual value would be $17,000.

Required

Calculate the total costs in keeping the old machine and purchasing a new machine. Should the old machine be replaced?

Keep old Machine Purchasse New Machine

Total Costs

Should the old machine be replaced?