M17-15. Relevant Costs for Equipment Replacement Decision Assume Urgent Care paid $42,000 for X-ray equipment four years ago. The equipment was expected to have a useful life of 10 years from the date of acquisition with annual operating costs of $25,000 Technological advances have made the machine purchased four years ago obsolete with a zero salvage value. An improved X-ray device incorporating the new technology is available at an initial cost of $50,000 and annual operating costs of $15,000. The new machine is expected to last only six years before it, too, is obsolete. Asked to analyze the financial aspects of replacing the obsolete but still func- tional machine, an Urgent Care accountant prepared the following analysis. After looking over these numbers, the company's manager rejected the proposal. Six-year savings [($25,000 - $15,000) x 6]. Cost of new machine Undepreciated cost of old machine [($42,000/10) x 6]. Advantage (disadvantage) of replacement. $ 60,000 (50,000) 25,200 $ 15,200 LC