A machine purchased three years ago for $320,000 has a current book value using straight-line depreciation of $188,000; its operating expenses are $30,000 per year. A replacement machine would cost $227,000, have a useful life of eleven years, and would require $12,000 per year in operating expenses. It has an expected salvage value of $74,000 after eleven years. The current disposal value of the old machine is $86,000; if it is kept 11 more years, its residual value would be $16,000.

Required

Calculate the total costs in keeping the old machine and purchase a new machine.

Keep Old Machine Purchase New Machine Total costs Should the old machine be replaced? Yes O No