Waukee Railroad is considering the purchase of a powerful, high$-$speed wheel grinder to replace a standard wheel grinder now in use. Selected information on the two machines follows:

Standard Wheel Grinder High$-$Speed Wheel Grinder

Original cost$/$new cost $$45,000$ $$67,500$

Accumulated depreciation to date $$18,000$ $$0$

Current salvage value $$11,750$ $$0$

Estimated cost per year to operate $$26,250$ $$16,250$

Remaining useful life $5$ years $5$ years

Required:

Compute the net advantage or disadvantage of purchasing the high$-$speed wheel grinder covering the five$-$year period. Use only relevant costs in your analysis. Ignore tax effects.

Step $1$: Determine what is relevant and what is not relevant to the decision

Standard wheel grinder

Item Relevant or not relevant Reason

Original cost standard grinder

Accumulated depreciation to date

Current salvage value of SWG

Estimated cost to operate

Remaining useful life

High$-$speed wheel grinder

Relevant or not relevant Reason

New cost

Accumulated depreciation to date

Current salvage value

Estimated cost to operate

Remaining useful life

Step $2$: Perform the quantitative analysis

Cost savings if the high$-$speed wheel grinder is purchased:

per year

Total cost savings

Incremental costs:

Net advantage $($disadvantage$)$ of purchasing the high$-$speed wheel grinder

Decision: