Question

Additional Exercise 195

Kinder Enterprises relies heavily on a copier machine to process its paperwork. Recently the copy clerk has not been able to process all the necessary copies within the regular work week. Management is considering updating the copier machine with a faster model.

		Current Copier			New Model
Original purchase cost		$10,000			$20,000
Accumulated depreciation		8,000			—
Estimated operating costs (annual)		7,000			2,600
Useful life		5 years			5 years

If sold now, the current copier would have a salvage value of $1,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after five years.

Prepare an analysis to show whether the company should retain or replace the machine. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any field blank. Enter 0 for the amounts.)

Additional Exercise 195

Kinder Enterprises relies heavily on a copier machine to process its paperwork. Recently the copy clerk has not been able to process all the necessary copies within the regular work week. Management is considering updating the copier machine with a faster model.

		Current Copier			New Model
Original purchase cost		$10,000			$20,000
Accumulated depreciation		8,000			—
Estimated operating costs (annual)		7,000			2,600
Useful life		5 years			5 years

If sold now, the current copier would have a salvage value of $1,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after five years.

Prepare an analysis to show whether the company should retain or replace the machine. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any field blank. Enter 0 for the amounts.)

If sold now, the current copier would have a salvage value of $1,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after five years.

Prepare an analysis to show whether the company should retain or replace the machine. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any field blank. Enter 0 for the amounts.)

		Retain Machine		Replace Machine		Net Income Increase (Decrease)
Operating CostsAccumulated DepreciationTotalsNew Machine CcostSalvage ValuePurchase Cost		$		$		$
TotalsPurchase CostAccumulated DepreciationOperating CostsNew Machine CcostSalvage Value
Salvage ValueNew Machine CcostTotalsPurchase CostOperating CostsAccumulated Depreciation
Accumulated DepreciationTotalsSalvage ValuePurchase CostOperating CostsNew Machine Ccost		$		$		$

The copier machine should be

replacedretained

.

Answer 1

Prepare an analysis to show whether the company should retain or replace the machine. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any field blank. Enter 0 for the amounts.)

		Retain Machine		Replace Machine		Net Income Increase (Decrease)
Operating costs		$35000		$13000		$22000
New machine cost				20000		-20000
Salvage value of old machine				-1000		1000
Total		$35000		$32000		$3000

The copier machine should be

replaced