At the beginning of last year (2019), Richter Condos installed a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator's speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the companys accountant to provide him with cost data on the companys elevator. This information is presented below. Old Elevator New Elevator Purchase price $105,000 $160,000 Estimated salvage value 0 0 Estimated useful life 5 years 4 years Depreciation method Straight-line Straight-line Annual operating costs other than depreciation: Variable $35,100 $11,000 Fixed 23,800 8,000 Annual revenues are $241,000, and selling and administrative expenses are $29,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2020, Richter Condos will be able to sell it for $24,500.

Prepare a 4-year summarized income statement for the following assumption:

(2) The old elevator is replaced.

Replace Old Elevator

Revenues

Less costs:

Variable costs

Fixed costs

Selling & administrative

Depreciation

Operating income

Loss on old elevator

Net income

Using incremental analysis, determine if the old elevator should be replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -15 or parentheses e.g. (15).)

		Retain Old Elevator		Replace Old Elevator		Net Income Increase (Decrease)
Variable operating costs		$		$		$
Fixed operating costs
New elevator cost
Salvage on old elevator
Totals		$		$		$

The old elevator

should/should not

be replaced.