Question

Last year (2013), Richter Condos installed a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator's speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the companys accountant to provide him with cost data on the companys elevator. This information is presented below.

Old Elevator

New Elevator

Purchase price

$96,050

$159,247

Estimated salvage value

0

0

Estimated useful life

5 years

4 years

Depreciation method

Straight-line

Straight-line

Annual operating costs

other than depreciation:

Variable

$34,254

$9,405

Fixed

23,836

8,820