Healing Hands Medical Center recently purchased an MRI machine for $500,000. Today, Medical Manufacturing Co. announced the availability of a new state of the art MRI machine that produces test results more quickly, resulting in significantly lower operating expenses. Healing Hands is considering the purchase of this faster, lower-operating cost MRI machine to replace the existing one they recently purchased. Either machine produces the same quality test results. Selected information about the two MRI machines is given below:

Existing New

Original cost $500,000 $650,000

Accumulated depreciation $ 50,000

Current value (if sold) $325,000

Remaining life 5 years 5 years

Annual operating expenses $175,000 $ 100,000

Disposal value in 5 years $ 0 $ 0

1. What costs are irrelevant to the decision whether or not to replace the existing MRI machine?

1. What costs are relevant to the decision whether or not to replace the existing MRI machine?