Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $45,000 and a remaining useful life of five years. It can be sold now for $55,000. Variable manufacturing costs are $44,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years.

	Machine A	Machine B
Purchase price	$ 122,000	$ 136,000
Variable manufacturing costs per year	22,000	14,000

(a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase?

Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted should be indicated with a minus sign.)

Machine A: Keep or Replace Analysis	Keep	Replace	Income Increase (Decrease) from Replacing
Revenues
Sale of existing machine
Costs
Purchase of new machine
Variable manufacturing costs
Income (loss)

Compute the income increase or decrease from replacing the old machine with Machine B. (Amounts to be deducted should be indicated with a minus sign.)

Machine B: Keep or Replace Analysis	Keep	Replace	Income Increase (Decrease) from Replacing
Revenues
Sale of existing machine
Costs
Purchase of new machine
Variable manufacturing costs
Income (loss)