Question

# a Canton Movie Theatre is considering selling its old popcorn machine and replacing it with a...

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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