Business Management, September 2001 P4-10 elevant cost analysis; book value P Time allowed: 25 minutes Murl Plastics Ltd purchased a new machine one year ago at a cost of 60,000. Although the machine operates well, the managing director (MD) wondered if the company should replace it with a new electronically operated machine that has just come on the market. The new machine would slash annual operating costs by two-thirds, as shown in the comparative data below: C Proposed Present machine New machine Purchase cost new 0:00) Estimated useful life new 6 years 5 years Annual operating costs Annual straight-line depreciation Remaining book value Salvage value now Salvage value in 5 years 242,000 14,000 10,000 18,000 29.00 50,000 10,000 In trying to decide whether to purchase the new machine, the MD has prepared the following analysis: 50,000 10,000 Book value of the old machine Less salvage value Net loss from disposal 40,000 'Even though the new machine looks good,' said the managing director, 'we can't get rid of the old one if it means taking a huge loss on it. We'll have to use it for at least a few more years. Sales are expected to be 200,000 peryear, and selling and administrative expected to be 126.000 per year, regardless of which machine expenses are is used