Murl Plastics Inc. purchased a new machine one year ago at a cost of $54,000. 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 Machine			Proposed New Machine
Purchase cost new	$	54,000		$	81,000
Estimated useful life new		6	years		5	years
Annual operating costs	$	37,800		$	12,600
Annual straight-line depreciation		9,000			16,200
Remaining book value		45,000
Salvage value now		9,000
Salvage value in five years		0			0

In trying to decide whether to purchase the new machine, the president has prepared the following analysis:

Book value of the old machine	$	45,000
Less: Salvage value		9,000
Net loss from disposal	$	36,000

Even though the new machine looks good, said the president, we cant get rid of that old machine if it means taking a huge loss on it. Well have to use the old machine for at least a few more years.

Sales are expected to be $189,000 per year, and selling and administrative expenses are expected to be $113,400 per year, regardless of which machine is used.

Required:

1.	Prepare a summary income statement covering the next five years, assuming the following:

a.	The new machine is not purchased.
b.	The new machine is purchased.
2.	Compute the net advantage of purchasing the new product using relevant costs.