Coronado Industries is considering the replacement of a piece of equipment with

Question

Coronado Industries is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment $172000 Purchase price Accumulated depreciation Annual operating costs New Equipment $288000 0 200000 229000 If the old equipment is replaced now, it can be sold for $90000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. The company uses straight-line depreciation with a zero salvage value for all of its assets. The net advantage (disadvantage) of replacing the old equipment with the new equipment is $(116000) $(53000) $288000 $57000

Explanation / Answer

Retain Replace Net Advantage/(disadvantage) Annual operating cost 1145000 1000000 145000 (229000*5) (200000*5) Purchase price of New Machine 0 288000 -288000 Old machine sold 90000 Total 1145000 1288000 -53000 Net disadvantage Option B -$53000

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