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.

Should the current machine be replaced?

Retain

Machine Replace Machine Net Income Increase(decrease)

Operating costs $ $ $

New machine cost

Salvage value (old)

Total $ $ $