Question
Blossom Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes
Blossom Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Blossom Roofing spent $72,600 refurbishing the lift. It has just determined that another $38,500 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $163,000. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $102,000 to $77,800 each year. Blossom Roofing could also rent out the new lift for about $9,500 per year. The old lift is not suitable for rental. The old lift could currently be sold for $24,000 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Retain Equipment Replace Equipment Operating expenses $ Repair costs Rental revenue New machine cost Sale of old machine Net Income Increase (Decrease) Total cost $ Should company repair or replace the equipment? The equipment be replacedStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started