Benson Company is considering the replacement of a machine that is presently use

Question

Benson Company is considering the replacement of a machine that is presently used in production. The following data are available:

                                                        Old Machine              New 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

A) Adding all five years together, the total relevant costs to consider if the new machine is purchased is ________.

B) Adding all five years together, the total relevant costs to consider if the old machine is not replaced is ________.

C) Adding all five years together, what is the difference in total relevant costs between the old machine and the new machine?

D) Should the old machine be replaced?

Explanation / Answer

A 35000 + 4000*5 = 55000

B 8000 + 7000*5 = 43000

C Difference = 43000 - 55000 = -12000

D It should not be replaced/

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