Question 3 On January 2, 2013, Benson Hospital purchased a SR100,000 special radiology scanner from Picard Inc. The scanner had a useful life of 4 years and was estimated to have no disposal value at the end of its useful life. The straight-line method of depreciation is used on this scanner. Annual operating costs with this scanner are SR105,000.

Approximately one year later, the hospital is approached by Dyno Technology salesperson, Meg Ryan, who indicated that purchasing the scanner in 2013 from Picard Inc. was a mistake. She points out that Dyno has a scanner that will save Benson Hospital SR30,000 a year in operating expenses over its 3-year useful life. She notes that the new scanner will cost SR110,000 and has the same capabilities as the scanner purchased last year. The hospitalagrees that both scanners are of equal quality. The new scanner will have no disposal value. Ryan agrees to buy theold scanner from Benson Hospitalfor SR40,000.

Instructions

(a). If Benson Hospital sells its old scanner on January 2, 2014, compute the gain or loss on the sale?

(b). Using incremental analysis,determineif Benson Hospitalshould purchase the new scanneron January 2, 2014.

Use the format below for your answer.

	Retain Scanner	Replace Scanner	Net Income Increase (Decrease)
Annual operating costs
Newscanner cost
Oldscanner salvage
Total

(c) Explain why Benson Hospital might be reluctant to purchase the new scanner, regardless of the results indicated by the incremental analysis in (b).