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Crane Company is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment New Equipment

Crane Company is considering the replacement of a piece of equipment with a newer model. The following data has been collected:

Old Equipment New Equipment
Purchase price $11,2000 $19,2000
Accumulated depreciation 44,800 - 0 -
Annual operating costs 15,0000 134,000

If the old equipment is replaced now, it can be sold for $31,000. Both the old equipments remaining useful life and the new equipments useful life is 5 years. The company uses straight-line depreciation with a zero salvage value for all of its assets. The net advantage (disadvantage) (net effect on current year net income) of replacing the old equipment with the new equipment is (dont consider annual operating costs in the computation)

$(7,400)

$44,800`

$(38,000)

$31,000

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