Timberwolf Corporation uses a machine that removes the popcorn ceilings for home renovations. The machine is

heavy to use and results in a significant damage that requires repair and excessive labor costs. The

management is considering replacing the machine with a more efficient one which will minimize

excessive labor costs and additional repairs. Data are presented below for the two machines:

Old Machine:

Original purchase cost $440,000

Accumulated depreciation 330,000

Estimated life 7 years

New Machine

Original purchase cost $470,000

Accumulated depreciation

Estimated life 7 years

It is estimated that the new machine will produce annual cost savings of $75,000. The old machine

can be sold to a scrap dealer for $6,000. Both machines will have a salvage value of zero if operated

for the remainder of their useful lives.

Instructions

Determine whether the company should purchase the new machine.