Q2. Genius laundromat replaced the washing machine just six months ago. Recently a new brand of washing machine has been announced that will wash clothes in a shorter time and lower operating expenses. The company is considering to replace the existing by a new machine. Selected information about the two ovens is given below:

	Existing Washing Machine	New Washing Machine
Original cost	$140,000	$134,000
Accumulated depreciation	$7,000	-
Current salvage value	$110,000	-
Remaining life	5 years	5 years
Annual operating expenses	$20,000	$17,000
Disposal value in 5 years	$0	$0

Required:

a. Identify relevant and sunk costs.

b. Assume the company purchases the new machine, identify the cash inflows and cash outflows. What is the effect of these cash flows.

c. State the qualitative factors that might play a role in making this purchase.