Question
Franke Timber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime
Franke Timber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime and excessive labor costs. The management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines: Old Machine Original purchase cost $410,000 Old Machine Accumulated depreciation 280,000 New machine cost $520,000 Estimated life for both is 5 yearsIt is estimated that the new machine will produce annual cost savings of $110,000. The old machine can be sold to a scrap dealer for $10,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives. Should Franke purchase the new machine?
A. | No-retain old machine to avoid $520,000 cost of new machine. | |
B. | Yes-purchase new machine because there will be a net cost savings of $10,000. | |
C. | Yes-purchase new machine because there will be a net cost savings of $30,000. | |
D. | Yes-purchase new machine because there will be a net cost savings of $40,000. |
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