Murl Plastics Inc. purchased a new machine one year ago at a cost of $39,000. 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:

Please show detailed working, thank you.

	Present Machine			Proposed New Machine
Purchase cost new	$	39,000		$	58,500
Estimated useful life new		6	years		5	years
Annual operating costs	$	27,300		$	9,100
Annual straight-line depreciation		6,500			11,700
Remaining book value		32,500
Salvage value now		6,500
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	$	32,500
Less: Salvage value		6,500
Net loss from disposal	$	26,000

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 $136,500 per year, and selling and administrative expenses are expected to be $81,900 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.