Exercise $6-18$A $($Static$)$ Asset replacement decision LO $6-5$

Tesla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management was

presented with the following information to assist in their decision:

The old machine was purchased three years ago for $$720,000$ and has a current book value using straight$-$line depreciation of

$$400,000.$

The old machine incurs operating expenses of $$60,000$ per year.

The current disposal value of the old machine is $$170,000$; if it is kept nine more years, its remaining value would be $$20,000.$

The replacement machine would cost $$480,000$ and have a useful life of nine years.

The replacement machine has an expected salvage value of $$130,000$ after nine years.

The replacement machine would require $$26,000$ per year in operating expenses.

Required

Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced?