Relevant Costs for Equipment Replacement Decision

Health Scan, Inc. paid $$50,000$ for X$-$ray equipment four years ago. The equipment was expected to have a useful life of $10$ years from the date of acquisition with annual operating costs of $$50,000.$ Technological advances have made the machine purchased four years ago obsolete with a zero salvage value. An improved X$-$ray device incorporating the new technology is available at an initial cost of $$146,000$ and annual operating costs of $$23,000.$ The new machine is expected to last only six years before it$,$ too, is obsolete. Asked to analyze the financial aspects of replacing the obsolete but still functional machine, Health Scan's accountant prepared the following analysis. After looking over these numbers, the Center's manager rejected the proposal.

Six$-$year savings $[($$$50,000$ $$23,000)\backslash$times $6]$ $$162,000$

Cost of new machine $(146,000)$

Undepreciated cost of old machine $(30,000)$

Advantage $($disadvantage$)$ of replacement $$(14,000)$