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City of Oliver is considering automating a process in its accounting department that has been labor-intensive. The equipment currently used in the department can be

City of Oliver is considering automating a process in its accounting department that has been labor-intensive. The equipment currently used in the department can be sold. The new equipment will have a projected useful life of 10 years. The old equipment has a remaining useful life of 10 years. The following data are available to be used in making the decision. Should the city invest in the new equipment? Support your answer with appropriate calculations.

Current equipment

Current equipment book value $ 30,000

Annual depreciation charges 3,000

Current estimated disposal value 5,000

New equipment

Cost $150,000

Annual depreciation charge 12,500

Expected disposal value 25,000

Labor savings each year $ 50,000

Present value factors @ 6%

$1 due in 10 years .55839

Annuity of $1 for 10 years 7.36009

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