Aircraft parts maker Toledo Company is considering replacing its metal cutting machine with a newer model. The original cost of the old machine was $1,000,000 and the 5-year lifespan is just 3 years old. The new machine is more efficient than the old machine at a cost of $600,000, but the new machine has a 2 year shorter lifespan. The Toledo Company may also sell its old machine for $40,000 worth of disposal. Toledo Corporation uses the straight-line method of depreciation. The data prepared by the management accountant for the existing (old) machine and the spare (new) machine are as follows:

Revenues from aircraft parts ($1.1 million per year) will not be affected by the replacement decision

Details	old machine	New Machine
actual cost	1.000.000 $	600.000 $
useful life	5 years	2 years
current era	3 years	0 years
Remaining useful life	2 years	2 years
Current disposal value (in cash)	40.000 $	Not yet won
Final disposal value (in cash 2 years from now)	0 $	0 $
Annual Operating costs (maintenance, energy, repairs, coolants, etc.)	800.000 $	460.000 $

a) If Toledo Company sells its old metal cutting machine, what would be the gain or loss from the sale?

Cost of Old Machine

Accumulated Depreciation (WN)

Book Value

Sales revenues

Loss in Sales

(b) Prepare a 2-year summary income statement for each of the following assumptions: Toledo company retains old machine, Toledo company buys new machine. (please show calculations of each step in the handout). - I made the table format myself, if you think something needs to be added or changed then do it.

Details	Hide the machines (a)	change machine (b)	Fark (c)= (a)-(b)
Revenues (2 years)	220.00.000 $	220.00.000 $	-
Minus: Cash Operating cost
for new machines
for old machines
Depreciation
Loss related to disposal of the machine
New machine cost
Disposal value of the old machine
Total amount
Net income

(c) Using incremental analysis, determine whether the old clipper should be kept or replaced?

Details	Kale	relocate	Net Profit Increase (Decrease)
Cash Operating Cost
Current disposal value of the old machine	-
New machine cost	-
Total Related Cost