Question

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		$___________

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)