Question
Granfield Company has a piece of manufacturing equipment with a book value of $49,500 and a remaining useful life of four years. At the end
Granfield Company has a piece of manufacturing equipment with a book value of $49,500 and a remaining useful life of four years. At the end of the four years the equipment will have a zero-salvage value. Granfield can purchase new equipment for $177,000 and receive $29,600 in return for trading in its current equipment. The current equipment has variable manufacturing costs of $58,000 per year. The new equipment will reduce variable manufacturing costs by $28,500 per year over its four-year life. The total increase or decrease in income by replacing the current equipment with the new equipment would be?
a. $33,400 decrease
b. $114,000 increase
c. $16,100 decrease
d. $77,650 increase
e. $33,400 increase
Step by Step Solution
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Step: 1
Firstly calculate the net cost of replacement by subtracting the tradein value f...Get Instant Access to Expert-Tailored Solutions
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