Munoz Company paid $105,000 to purchase a machine on January 1, 2017. During 2019, a technological breakthrough resulted in the development of a new machine that costs $118,000. The old machine costs $59,000 per year to operate, but the new machine could be operated for only $10,000 per year. The new machine, which will be available for delivery on January 1, 2019, has an expected useful life of five years. The old machine is more durable and is expected to have a remaining useful life of five years. The current market value of the old machine is $49,000. The expected salvage value of both machines is zero.

Required

Calculate the total avoidable costs in keeping the old machine and buying a new machine. Should the machine be replaced?

Keep Old Buy New

Total avoidable costs

Should the machine be replaced?