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Samosh Plastics inc. purchased a new machine one ycar ago at a cost of $120.000. Although the machine operates welf and has five mare years
Samosh Plastics inc. purchased a new machine one ycar ago at a cost of $120.000. Although the machine operates welf and has five mare years of opetating life: the president of Santosh Plastics is wondering if the company should replace it with a new electrortic machine that has just corne on the market. The new machine costs $180,000 and is expected to slash the current annual operating costs of $84,000 by two-thirds, The new machine is expected to last for five years, with zero salvage value at the end of five years. The cutrent machine can be sold fot $20.000 if the company decides to buy the few machine. The company uses straight-line depreciation. In trying to decide whether to purchase the new machine. the president has prepared the following analysis "Even though the new machine looks good," said the president, "we can't get fid of that old machine if it means taking a huge loss on it. Well have to use the old machine for at least a few more years." Sales are expected to be $420,000 per year, and seling and administrative expenses are expected to be $252,000 per year. regardless of which machine is used. Required: 1. Prepare a comparative income statement covering the next five years, assuming: a. The new machine is not purchased. b. The new machine is purchased. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) (Negotive amounts should be indicated by a minus sign. Do not round intermediate calculotions.) 2. Compute the net advantage of purchasing the new machine using only relevant costs in your analysis. (Do not round inter calculations.)
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