Question
Sweet Tea by the Gallons (STG) has an older piece of equipment that potentially needs to be replaced with a newer piece of equipment. Information
Sweet Tea by the Gallons (STG) has an older piece of equipment that potentially needs to be replaced with a newer piece of equipment. Information for each machine is provided below:
| Current (Old) Equipment | |
| Book Value | $320,000 |
| Annual repair expense | $8,000 |
| Useful life | 5 years |
| Selling price | $115,000 |
| Selling expense | $4,000 |
| New Equipment | |
| Purchase Price | $210,000 |
| Annual repair expense | $200 |
| Years in lease | 5 years |
A.What is the differential profit for keeping the old equipment?
B.What is the differential profit for purchasing the new equipment?
C.Which option is most profitable, keeping or replacing? Insert numerical value. D.What is one relevant qualitative consideration for this decision?
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Auditing Cases An Interactive Learning Approach
Authors: Mark S Beasley, Frank A. Buckless, Steven M. Glover, Douglas F Prawitt
7th Edition
0134421825, 9780134421827
