a Windsor Company is considering the purchase of a new machine. The invoice price of the machine is $106,000, freight charges are estimated to be $3,000, and installation costs are expected to be $5,000. The salvage value of the new equipment is expected to be zero after a useful life of 5 years. The company could retain the existing equipment and use it for an additional 5 years if it doesn't purchase the new machine. At that time, the equipment's salvage value would be zero. If Windsor purchases the new machine now, it would have to scrap the existing machine. Windsor's accountant, Patricia Johnson, has accumulated the following data for annual sales and expenses, with and without the new machine: 1. Without the new machine, Windsor can sell 9,000 units of product annually at a per-unit selling price of $100. If it purchases the new machine, the number of units produced and sold would increase by 10%, and the selling price would remain the same. 2. The new machine is faster than the old machine, and it is more efficient in its use of materials. With the old machine, the gross profit rate is 25% of sales, whereas the rate will be 30% of sales with the new machine. 3. Annual selling expenses are $137,000 with the current machine. Because the new machine would produce a greater number of units to be sold, annual selling expenses are expected to increase by 10% if it is purchased. 4. Annual administrative expenses are expected to be $76,000 with the old machine, and $86,000 with the new machine. 5. The current book value of the existing machine is $27,000. Windsor uses straight-line depreciation. P. 75% 29C amounts.) Keep Old Machine $ 3600000 Sales Less costs: $ 2700000 Cost of goods sold 685000 i Selling 3765000 i 380000 Administrative $ - 165000 Operating income Buy New Machine Sales $ 3960000 Less costs: Cost of goods sold $ 2772000 Selling 602800 344000 3718800 Administrative $ 241200 Operating income Retain Old Replace Old Retain Old Machine Replace Old Machine Net Income Increase (Decrease) $ $ Operating income - 165000 $ 241200 76200 IND 114000 114000 Cost of the new machine ta $ $ $ 37800 127200 - 165000 Totals The new machine should be purchased. 750 29C