Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Darcy 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
Darcy 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, Darcy Roofing spent $67,800 refurbishing the lift. It has just determined that another $32,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $136,000. The company estimates that both lifts would have useful lives of 6 years. The new lift is more efficient and thus would reduce operating expenses by about $22,600 per year. Darcy Roofing could also rent out the new lift for about $8,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $20,000 if the new lift is purchased. 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 -22600 -22600 Repair costs 32000 32000 Rental revenue -8000 -8000 New machine cost 136000 -136000 Sale of old machine -20000 20000 Total cost 32000 854000 -53400 Should company repair or replace the equipment? should The equipment be replaced
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started