Murl Plastics Inc. purchased a new machine one year ago at a cost of $30,000. 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

$

30,000

$

45,000

Estimated useful life new

6

years

5

years

Annual operating costs

$

21,000

$

7,000

Annual straight-line depreciation

5,000

9,000

Remaining book value

25,000

Salvage value now

5,000

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	$	25,000
Less: Salvage value		5,000
Net loss from disposal	$	20,000

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 $100,000 per year, and selling and administrative expenses are expected to be $63,000 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.

(Leave no cells blank - be certain to enter "0" wherever required.)

	5 Years Summary
	Keep Old Machine	Buy New Machine	Difference
Total expenses

2.	Compute the net advantage of purchasing the new product using relevant costs.

of purchasing the new machine