Company faces the decision to either keep an older, more expensive machine, or r
ID: 2615334 • Letter: C
Question
Company faces the decision to either keep an older, more expensive machine, or replace it with a newer machine, which has a limited technical lifetime. All the available data can be found in the table below:
Using only the above data, please determine:
The total cost of keeping the old machine in the next 3 years.
Old machine acquisition cost New machine acquisition cost Bookvalue old machine today Yearly operational (outlay) cost old machine Yearly operational (outlay) cost new machine Sales value old machine today Sales value old machine end of useful life Tax rate Remaining useful life old machine in years Useful life new machine in years 80.000,00 50.000,00 30.000,00 16.000,00 9.000,00 31.000,00 25%Explanation / Answer
Book value of old machine today = 30,000
Remaining useful life of old machine = 3 years
Annual depreciation of old machine = 30,000/3
= 10,000
Annual operational cost of old machine = 16,000
Hence, annual cost of keeping the old machine = 10,000 + 16,000
= 26,000
Hence, total cost of keeping the old machine for the next 3 years = 26,000 x 3
= 78,000
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