Question

Gull Corp. is considering selling its old popcorn machine and replacing it with a newer one....

Gull Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine has a book value of $5,000, and its remaining useful life is five years. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 with annual operating costs of $1,500. The new machine has an estimated useful life of five years.

Should the machine be replaced?
No

Support your answer with calculations.

Proposal to Replace Equipment
Annual Costs - Present Equipment $_________
Annual Costs - New Equipment __________
Annual Differential Decrease in Cost $__________
Number of Years Applicable X__________
Total Differential Decrease in Cost $______________
Proceeds from Sales of Present Equipment $___________
Cost of New Equipment _____________
Net Differential Increase in Cost - New Equipment $___________

Homework Answers

Answer #1

Solution:

No, the machine should not be replaced

Support your answer with calculations.

Proposal to Replace Equipment

Annual Costs - Present Equipment

$4,000

Annual Costs - New Equipment

$1,500

Annual Differential Decrease in Cost

$2,500

Number of Years Applicable

5

Total Differential Decrease in Cost

$12,500

Proceeds from Sales of Present Equipment

$2,000

Cost of New Equipment

$18,000

Net Differential Increase in Cost - New Equipment

($3,500)

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