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Problem 9-1 Making an Equipment Replacement Decision (LO1 - CC2) Santosh Plastics inc. purchased a new machine one year ago at a cost of $93.000.

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Problem 9-1 Making an Equipment Replacement Decision (LO1 - CC2) Santosh Plastics inc. purchased a new machine one year ago at a cost of $93.000. Although the machine operates well and has five more years of operating life, the president of Santosh Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine costs $139,500 and is expected to slash the current annual operating costs of $65,100 by two-thirds. The new machine is expected to last for five years, with zero salvage value at the end of five years. The current machine can be sold for $15.500 if the company decides to buy the new machine. The company uses straight-line depreciation. In trying to decide whether to purchase the new machine, the president has prepared the following analysis: "Even though the new machine looks good," said the president, "we can't get rid of that oid 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 $325,500 per year, and selling and administrative expenses are expected to be $195,300 per year, regardless of which machine is used. Required: 1. Prepare a comparative income statement covering the next five years, assuming: o. The new machine is not purchased. b. The new machine is purchased. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) Required: 1. Prepare a comparative income statement covering the next five years, assuming: a. The new machine is not purchased. b. The new machine is purchased. (Negotive amounts should be indicated by a minus sign. Do not round intermediote colculotions.) 2. Compute the net advantage of purchasing the new machine using only televant costs in your analysis. (Do not round intermediate colculetions.)

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