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Murl Plastics Inc. purchased a new machine one year ago at a cost of $48,000. Although the machine operates well, the president of Murl Plastics
Murl Plastics Inc. purchased a new machine one year ago at a cost of $48,000. Although the machine operates well, the president of Murl Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine would slash annual operating costs by two-thirds, as shown in the comparative data below: Present Proposed Machine New Machine $72,000 Purchase cost new $48,000 Estimated useful life new 6 years 5 years $33,600 Annual operating costs $11,200 Annual straight-line depreciation 8.000 14.400 Remaining book value 40,000 Salvage value now 8,000 Salvage value in five years n trying to decide whether to purchase the new machine, the president has prepared the following analysis Book value of the old machine $40,000 Less: Salvage value 8,000 $32,000 Net loss from disposal "Even though the new machine looks good," said the president, we can't get rid of that old machine if it means taking a huge loss on it. We'll have to use the old machine for at least a few more years. Sales are expected to be $168,000 per year and selling and administrative expenses are expected to be $100,800 per year regardless of which machine is used
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