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Question4 You have been provided the following keep or replace decision information: Old Machine New Machine Cost SR 50,000 SR 100,000 Salvage value SR 10,000

Question4 You have been provided the following keep or replace decision information: Old Machine New Machine Cost SR 50,000 SR 100,000 Salvage value SR 10,000 SR 5,000 Trade-in allowance SR 15,000 Remaining useful life 10 years 10 years Labor costs (annual) SR 20,000 SR 5,000 Repairs and maintenance SR 5,000 SR 6,000 Utilities SR 1,000 SR 2,000 Interest rate* 6% * Assume installment financing and estimate interest by computing average size of loan over life of machine. Required: Determine whether or not the old machine should be replaced. 19 Question4 You have been provided the following keep or replace decision information: Old Machine New Machine Cost SR 50,000 SR 100,000 Salvage value SR 10,000 SR 5,000 Trade-in allowance SR 15,000 Remaining useful life 10 years 10 years Labor costs (annual) SR 20,000 SR 5,000 Repairs and maintenance SR 5,000 SR 6,000 Utilities SR 1,000 SR 2,000 Interest rate* 6% * Assume installment financing and estimate interest by computing average size of loan over life of machine. Required: Determine whether or not the old machine should be replaced. 19

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