Question

(Ignore taxes and the time value of money.) Maxwell Company has an opportunity to acquire a new machine to replace one of its present machines. The new machine would cost $90,000, have a five year life, and no salvage value. Variable operating costs would be $100,000 per year. The present machine has a book value of $50,000 and a remaining life of five years. Its disposal value now is $5,000 but it would be zero after five years. Variable operating costs would be $125,000 per year. Considering the five years in total, what would be the impact on operating income if the new machine is acquired?

Select one:

a. $10,000 decrease

b. $15,000 decrease

c. $35,000 increase

d. $40,000 increase