Blue Band Company is considering replacing a piece of equipment that is presently used in the production of its product. The following data are available:

Replacement

Old Equipment Equipment

Original cost $200,000 $140,000

Useful life in years 10 5

Current age in years 5 0

Book value $100,000

Disposal value now $27,000

Disposal value in 5 years 0 0

Annual cash operating costs $22,000 $15,000

Required:

Prepare a schedule that compares all relevant items for the next 5 years. Show all calculations.

Should the equipment be replaced? Explain why or why not. Discuss how much money will be saved by your decision.