Question
Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night,
Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing.
Current Machine | New Machine | ||||||
---|---|---|---|---|---|---|---|
Original purchase cost | $14,700 | $25,500 | |||||
Accumulated depreciation | $6,500 | _ | |||||
Estimated annual operating costs | $24,900 | $19,800 | |||||
Remaining useful life | 5 years | 5 years |
If sold now, the current machine would have a salvage value of $10,400. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years. Prepare an incremental analysis to determine whether the current machine should be replaced.
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