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 $66,000 refurbishing the lift. It has just determined that another $29,500 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $126,000. 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 $91,000to $69,000 each year. Blossom Roofing could also rent out the new lift for about $7,500 per year. The old lift is not suitable for rental. The old lift could currently be sold for $18,500 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 | Net Income Increase (Decrease) | ||||
---|---|---|---|---|---|---|
Operating expenses | $enter a dollar amount | $enter a dollar amount | $enter a dollar amount | |||
Repair costs | enter a dollar amount | enter a dollar amount | enter a dollar amount | |||
Rental revenue | enter a dollar amount | enter a dollar amount | enter a dollar amount | |||
New machine cost | enter a dollar amount | enter a dollar amount | enter a dollar amount | |||
Sale of old machine | enter a dollar amount | enter a dollar amount | enter a dollar amount | |||
Total cost | $enter a total amount | $enter a total amount | $enter a total amount |
Should company repair or replace the equipment? The equipment select an option should notshould be replaced.
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