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Sheridan Company is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment New Equipment

Sheridan Company is considering the replacement of a piece of equipment with a newer model. The following data has been collected:

Old Equipment New Equipment
Purchase price $225000 $375000
Accumulated depreciation 90000 - 0 -
Annual operating costs 308000 255000

If the old equipment is replaced now, it can be sold for $60000. Both the old equipments remaining useful life and the new equipments useful life is 5 years. The company uses straight-line depreciation with a zero salvage value for all of its assets. The net advantage (disadvantage) of replacing the old equipment with the new equipment is

$60000

$(15000)

$(83000)

$90000`

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