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Question 3 (Retain or Replace Equipment) Kinder Enterprises relies heavily on a copier machine to process its paperwork. Recently the copy clerk has not
Question 3 (Retain or Replace Equipment) Kinder Enterprises relies heavily on a copier machine to process its paperwork. Recently the copy clerk has not been able to process all the necessary copies within the regular work week. Management is considering updating the copier machine with a faster model. Original purchase cost Accumulated depreciation Current Copier $10,000 8,000 New Model $20,000 - Estimated operating costs (annual) Useful life 7,000 5 years 2,600 5 years If sold now, the current copier would have a salvage value of $1,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after five years. Prepare an analysis to show whether the company should retain or replace the machine. [5 marks]
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