The Owner has just written a check for $20,000 as full payment for the New waxin

Question

The Owner has just written a check for $20,000 as full payment for the New waxing machine installed today.

1. The machine cost $15,000 per year to operate (exclusive of depreciation).

2. It will have no disposal value at the end of its four-year useful life.

3. The new machine works pretty well, but that particular model is prone to scratching customer's car paint and breaking side mirrors.

4. Another machine doesn't do that only costs $24,000.

5. Annual operating costs of this machine are $9,000 and this machine will also have a four year useful life and have zero disposal value in four years.

6. A third party has offered you $10,000 for the newly purchased "old" machine, but the transport company will charge you $2,000 to move it across town.

7. In either case, annual sales will be $150,000 and other cash expenses will be $110,000

Indicate if the following data is Relevant or Irrelevant

1. $20,000 cost of the old machine

2. $24,000 cost of the new machine

3. $15,000 old machine operating cost

4. $9,000 new machine operating cost

5. Annual sales of $150,000

6. Other cash expenses of $110,000

7. $10,000 value of Old machine today

8. $2,000 relocation charge of old machine

I only need to know the 2nd part, which ones are relevant or irrelevant?

Explanation / Answer

Indicate if the following data is Relevant or Irrelevant

1. $20,000 cost of the old machine Relevant

2. $24,000 cost of the new machine Relevant

3. $15,000 old machine operating cost Relevant

4. $9,000 new machine operating cost Relevant

5. Annual sales of $150,000 Relevant

6. Other cash expenses of $110,000 Relevant

7. $10,000 value of Old machine today Irrelevant

8. $2,000 relocation charge of old machine Irrelevant

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