ack's Lumber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime and excessive labor costs. The management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines: Old Machine New Machine Original purchase cost $340,000 $370,000 Accumulated depreciation 230,000 Estimated life 5 years 5 years It is estimated that the new machine will

It is estimated that the new machine will produce annual cost savings of $85,000. The old machine can be sold to a scrap dealer for $8,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives.

Instructions

Determine whether the company should purchase the new machine

Old MachineNew Machine Original purchase cost$340,000$370,000 Accumulated depreciation230,000 Estimated life5 years5 years