Crone Enterprises uses a word processing computer to handle its sales invoices.
ID: 2389969 • Letter: C
Question
Crone Enterprises uses a word processing computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing. If sold now, the current machine would have a salvage value of $5,950. 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 5 years. Complete the analysis to determine if the current machine should be replacedExplanation / Answer
Retain
Replace
NI increase(decrease)
Operating costs
124,750
97,600
27,150
New machine costs
0
21,100
(21,100)
Salvage value
0
5,950
5,950
Total
124,750
112,750
12,000
The current machine should be replaced.
Retain
Replace
NI increase(decrease)
Operating costs
124,750
97,600
27,150
New machine costs
0
21,100
(21,100)
Salvage value
0
5,950
5,950
Total
124,750
112,750
12,000
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