Kendra Company is considering replacing an old machine. The old machine was purchased for $101,200 and has a book value of $41,200 and should last four more years with no salvage value. The company believes that it could currently sell the old machine for $21,200. The new machine cost $81,200 and will have a 4-year life and a $11,200 salvage value. Currently, it costs $21,200 annually to operate the old machine. The new machine is more efficient and should reduce operating cost by 50%. Based on quantitative analysis, should Kendra Company replace the old machine?

Multiple Choice

1-Yes, because the relevant cost of the new machine is $8,800 less than the old machine.

2-No, because the relevant cost of the new machine is $21,200 more than the old machine.

3- Yes, because the relevant cost of the new machine is $18,800 less than the old machine.

4-No, because the relevant cost of the new machine is $6,400 more than the old machine.