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Sunland Inc. has an industrial sewing machine that it has used for the past 5 years. The company is considering replacing the machine with a
Sunland Inc. has an industrial sewing machine that it has used for the past 5 years. The company is considering replacing the machine with a faster model as it is starting to break down more often. As it will be faster and eliminate overtime, it will increase operating income by $4,600 per year over its useful life of 6 years. Current Machine New Machine Original purchase cost $45,200 $26,700 Accumulated depreciation $20,900 Remaining useful life 6 years 6 years If sold now, the current sewing machine would have a salvage value of $15,200. If it is used for the remainder of its useful life, the current sewing machine would have zero salvage value. The new sewing machine is expected to have zero salvage value after 6 years. Determine whether the current sewing machine should be replaced. (Ignore the time value of money.) (If an amount reduces the net income then enter with a negative sign preceding the number, e.g. -15,000 or parenthesis, e.g. (15,000).) Retain Replace Incremental cost saving $ $ $ Incremental income New machine cost Proceeds from sale of old machine S Net incremental savings should should not The company v replace the sewing machine
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