Marryland 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 MachineNew Machine

Original purchase cost

$24,000

$30,000

Accumulated depreciation

$15,000

Estimated annual operating costs

$23,000

$17,750

Useful life

5 years

5 years

If sold now, the current machine would have a salvage value of $8,500. 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.

Instructions

a.Should the current machine be replaced or still using the current one? (show your calculation). (10 mark)

b.Explain why? (10 mark)