Do It! Review 20-5 Darcy Roofing is faced with a decision. The company relies ve
ID: 2556958 • Letter: D
Question
Do It! Review 20-5 Darcy Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Darcy Roofing spent $73,800 refurbishing the lift. It required. Alternatively, it has found a newer used lift that is for sale for $173,500. The company estimates that both lifts would have useful lives of 6 years. The new lift is more efficient and thus woul the new lift for about $10,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $25,500 if the new lift is purchased. has just determined that another $41,000 of repair work is ld reduce operating expenses by about $24,600 per year. Darcy Roofing could also rent out machines showing whether the company should replace the equipment. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative a net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45)) Replace Net Income Retain Equipment Equipment Increase (Decrease) Operating expenses $ Repair costs Rental revenue New machine cost Sale of old machine Total cost Click if you would like to Show Work for this question: Open Show Work LINK TOExplanation / Answer
Solution
Particulars
Retain Equipment ($)
Replace Equipment ($)
Net Income (Increase or Decrease)
Operating expenses
147,600*
NIL
147,600 Increase
Repair cost
41,000
NIL
41,000 Increase
Rental income
NIL
60,000**
60,000 Increase
New Machine cost
NIL
(173,500)
(173,500) Decrease
Sale of old machine
NIL
25,500
25,500 Increase
Total cost
188,600
($ 88,000)
100,600
*$ 24,600 per year reduction of operating expenses for 6 years
=$ 24,600 X 6 = $ 147,600
**$ 10,000 per year rental income for 6 years
=$ 10,000 X 6 = $ 60,000
The analysis indicates that replacing equipment would increase net income for period of 6-year by $100,600.
Particulars
Retain Equipment ($)
Replace Equipment ($)
Net Income (Increase or Decrease)
Operating expenses
147,600*
NIL
147,600 Increase
Repair cost
41,000
NIL
41,000 Increase
Rental income
NIL
60,000**
60,000 Increase
New Machine cost
NIL
(173,500)
(173,500) Decrease
Sale of old machine
NIL
25,500
25,500 Increase
Total cost
188,600
($ 88,000)
100,600
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