Bert Company is considering replacing a machine that is presently used in the pr
ID: 2464854 • Letter: B
Question
Bert Company is considering replacing a machine that is presently used in the production of its product. The following data are available:
Replacement
Old Machine Machine
Original cost $57,000 $35,000
Useful life in years 17 5
Current age in years 12 0
Book value $39,000
Disposal value now $8,000
Disposal value in 5 years 0 0
Annual cash operating costs $7,000 $4,000
The difference in cost between keeping the old machine and replacing the old machine, ignoring income taxes, is _____the old machine.
$37,000 in favor of replacing
$22,000 in favor of replacing
$12,000 in favor of keeping
$22,000 in favor of keeping
A.$37,000 in favor of replacing
B.$22,000 in favor of replacing
C.$12,000 in favor of keeping
D.$22,000 in favor of keeping
Explanation / Answer
Answer c. $12000 in favor of Keeping Diffrence in Annual Operating Cost (7000 - 4000) X 5 15,000 Less: Cost of New Mach (35,000) Add: Salvage Value of Old Machine 8,000 Toatl benefits of replacing the old Machine (12,000)
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