Question
Required: GH Company is trying to decide whether to replace a current piece of machinery with a new machine. Using the below data, determine the
Required: GH Company is trying to decide whether to replace a current piece of machinery with a new machine. Using the below data, determine the relevant costs of the old machine and the new machine. Should GH Company purchase the new machine? | |||||
(25 points) | |||||
Old Machine | New machine | ||||
Original cost | 100,000 | ||||
Accumulated depreciation | (50,000) | ||||
Book value | 50,000 | ||||
Market value (now) | 25,000 | 30,000 | |||
Salvage value (in 5 years) | 5,000 | 8,000 | |||
Annual depreciation expense | 11,000 | ||||
Operating expenses | |||||
Per year | 9,000 | 4,500 | |||
Times number of years | 4 | 4 | |||
Total operating expenses | 36,000 | 18,000 | |||
Your calculations here: | |||||
Relevant costs: | Old Machine | New Machine | |||
Total | |||||
Your decision: Keep the Old Machine or Buy the New Machine? Why? | |||||
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