Rory Company has an old machine with a book value of $$75,000$ and a remaining five$-$year useful life. Rory is considering purchasing a new machine at a price of $$104,000.$ Rory can sell its old machine now for $$61,000.$ The old machine has variable manufacturing costs of $$31,000$ per year. The new machine will reduce variable manufacturing costs by $$12,400$ per year over its five$-$year useful life.

$($a$)$ Prepare a keep or replace analysis of income effects for the machines.

$($b$)$ Should the old macPrepare a keep or replace analysis of income effects for the machines.

Keep or Replace Analysis

Keep Replace Income Increase $($Decrease$)$ if replaced

Revenues

Sale of existing machine $$61,000$

Costs

Purchase of new machine $104,000$

Variable manufacturing costs

Income $($loss$)$hine be replaced?