Question
Sheridan Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes
Sheridan Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Sheridan Roofing spent $ 76,200 refurbishing the lift. It has just determined that another $ 44,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $ 187,000. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $ 108,000 to $ 82,600 each year. Sheridan Roofing could also rent out the new lift for about $ 11,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $ 27,500 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Retain Equipment Replace Equipment Net Income Increase (Decrease) Operating expenses $ ta 152400 $ 0 $ $ 152400 Repair costs 44000 i 44000 Rental revenue -66000 66000 New machine cost 187000 i -187000 Sale of old machine -2750 27500 Total cost $ 196400 $ 93500 A 102900
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