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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 $60,000 refurbishing the lift. It has just determined that another $50,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $170,000. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $90,000 to $60,000 each year. Darcy Roofing could also rent out the new lift for about $10,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $15,000 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. 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 Operating expenses $ Repair costs Rental revenue Replace Equipment 0 $ 120000 $ 0 60,000 40000.00 60000.00 New machine cost 1,70,000 -170000.00 i Sale of old machine Total cost -25,000 25000.00 Net Income Increase (Decrease) $ 160000 $ 85000 $ 75000
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