a Canton Movie Theatre is considering selling its old popcorn machine and replacing it with a newer one. The old machine originally cost $5,000 and has been fully depreciated. Annual costs are $3,500. Canton high school is willing to buy it for $1,000. New equipment would cost $18,000 and annual operating costs would be $1,500. The new machine has an estimated useful life of 5 years, and the old machine will last another 5 years. Please Prepare a proposal and determine if we should replace the old equipment.
GIVEN DATA:
old machine originally cost = $5,000
Annual costs = $3,500
Canton high school buy = $1,000
New equipment cost = $18,000
Annual operating costs = $1,500
New machine estimated = 5 years
Old machine last another = 5 years.
REQUIRED:
Prepare a proposal and determine if we should replace the old equipment?
SOLUTION:
Annual cost = 3500
Old machine(last) = 5 years
Total Cost of Old Machine = 3500 * 5
= 17,500$
Therefore cost associated for 5 years is 17,500$
New equipment cost = 18,000
Wiling to brought = 1,000
Annual operating costs = 1,500
New machine(estimated) = 5 years
Total Cost of New Machine = (18000 -1000 ) +1500 * 5
= 17000 +1500 *5
= 17000 +7500
= 24,500$
Therefore cost associated for 5 years is 24,500$
NET Cost savings with Old Machine = 24500 - 17500
= 7000$
" THEREFORE THE OLD MACHINE SHOULD NOT BE REPLACED WITH THE NEW MACHINE "
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