Question

PharmaMED is considering replacing an old Tablet Press with a new high tech state of the art tablet press. Estimates for the next ten years are as follows:

Old Press New PressAverage

annual sales $900,000 $975,000

Annual operating costs $450,000 $350,000

Original costs of old tablet press $950,000 -

  Accumulated Depreciation $855,000 -

List price of new tablet press - $1,725,000

   Remaining life 10 years -

Expect life - 10 years

Salvage value now $50,000            -

disposable value in 10 years - -

Instructions:

a) Prepare an incremental analysis for the keep or replace equipment decision.

b) In the box below, enter the impact on income

c) After completing the quiz, upload all calculations supporting your answer including a decision to keep or replace the equipment.

Answer 1

Req a:
Incremental analysis
			Keep	Replace	Effect on inocme
Sales revenue of 10 years	90,00,000	97,50,000	7,50,000
Opearing cost for 10 years	-45,00,000	-35,00,000	10,00,000
Cost of new machinery		-17,25,000	-17,25,000
Salvage value of Old machinery	0	50,000	50,000
Net effect on income	45,00,000	45,75,000	75,000
Req b:
Net increase in icnome: 75,000
Req c:
The equipment shall be replaced.