Question
Granfield Company has a piece of manufacturing equipment with a book value of $38,500 and a remaining useful life of four years. At the end
Granfield Company has a piece of manufacturing equipment with a book value of $38,500 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $21,700. Granfield can purchase a new machine for $117,000 and receive $21,700 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $18,700 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:
Multiple Choice
$20,500 decrease
$16,800 decrease
$20,500 increase
$74,800 decrease
$50,950 increase
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