Replace Equipment

Biscayne Bay Kayaks manufactures and sells 2,000 kayaks each year. Manufacturing is done in batches of 25 hulls each. Each kayak sells for $6,995. The company uses a machine to form the hulls of the kayaks. The machine was purchased five years ago for $300,000. It is being depreciated using straight-line depreciation with zero salvage value at the end of its 10-year useful life. The old machine can be sold now for $100,000. The company has the opportunity to purchase a new machine for $250,000. It would have a useful life of five years with a salvege value of zero. The new machine would save on the batch cost and the direct materials. Additional information:

			Old machine	New machine
Batch setup cost
	Old--three workers two hours		$ 150.00
	New--two workers one hour			$ 50.00
Raw materials per hull
	Old--		$ 3,025
	New--			$ 3,000

2.1 Should Biscayne Bay Kayaks purchase the new machine?YES NO

2.2 What is the increase/decrease in profit if Biscayne Bay Kayaks purchases the new machine?

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2.3 If Biscayne Bay Kayaks used accelerated depreciation, the book value of the old machine would be $92,880. Would that change your decision? Why or why not?