A machine purchased three years ago for $311,000 has a current book value using straight-line depreciation of $184,000; its operating expenses are $36,000 per year. A replacement machine would cost $224,000, have a useful life of ten years, and would require $11,000 per year in operating expenses. It has an expected salvage value of $66,000 after ten years. The current disposal value of the old machine is $77,000; if it is kept 10 more years, its residual value would be $16,000.

Required

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

Total Costs: Keep the old machine = ? purchase new machine = ?

Should the old machine be replaced?