The management of a private hospital is considering the installation of an automatic telephone switchboard, which would

Question:

The management of a private hospital is considering the installation of an automatic telephone switchboard, which would replace a manual switchboard and eliminate the attendant operator's position. The class of service provided by the new equipment is estimated to be at least equal to the present method of operation. To provide telephone service, five operators will work three shifts per day, 365 days per year. Each operator earns $14,000 per year. Company-paid benefits and overhead are 25% of wages. Money costs 8% after income taxes.

Combined federal and state income taxes are 40%. Annual property taxes and maintenance are 21;2 and 4% of investment, respectively. Depreciation is I5-year straight line. Disregarding inflation, how large an investment in the new equipment can be economically justified by savings obtained by eliminating the present equipment and labor costs? The existing equipment has zero salvage value.

Depreciation
Depreciation is an important concept in accounting. By definition, depreciation is the wear and tear in the value of a noncurrent asset over its useful life. In simple words, depreciation is the cost of operating a noncurrent asset producing... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...