QS 25-15 (Algo) Keep or replace LO P5 Rory Company has an old machine with a book value of $85,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $112,000. Rory can sell its old machine now for $61,000. The old machine has variable manufacturing costs of $40,000 per year. The new machine will reduce variable manufacturing costs by $16,000 per year over its five-year useful life. (a) Prepare a keep or replace analysis of income effects for the machines. (b) Should the old machine be replaced? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a keep or replace analysis of income effects for the machines. Keep or Replace Analysis Keep Replace Income Increase (Decrease) if replaced Revenues Sale of existing machine $ 0 $ 61,000 Costs Purchase of new machine $ 0 Variable manufacturing costs $ 200,000 112,000 120,000 Income (loss) $ (200,000) < Required A Required B >

QS 25-15 (Algo) Keep or replace LO P5 Rory Company has an old machine with a book value of $85,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $112,000. Rory can sell its old machine now for $61,000. The old machine has variable manufacturing costs of $40,000 per year. The new machine will reduce variable manufacturing costs by $16,000 per year over its five-year useful life. (a) Prepare a keep or replace analysis of income effects for the machines. (b) Should the old machine be replaced? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a keep or replace analysis of income effects for the machines. Keep or Replace Analysis Keep Replace Income Increase (Decrease) if replaced Revenues Sale of existing machine $ 0 $ 61,000 Costs Purchase of new machine $ 0 Variable manufacturing costs $ 200,000 112,000 120,000 Income (loss) $ (200,000) < Required A Required B >

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 14PROB

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this is a 2 part question Exercise 23-10 (Algo) Keep or replace LO P5 Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $49,000 and a remaining useful life of five years. It can be sold now for $59,000. Variable manufacturing costs are $49,000 per year for this old machine Information on two alternative replacement machines follows The expected useful life of each replacement machine is five years. Purchase price Variable manufacturing costs per year (a) Compute the income increase or decrease from replacing the old machine with Machine A (b) Compute the income increase or decrease from replacing the old machine with Machine B (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase? Req A Complete this question by entering your answers in the tabs below. Revenues Machine A: Keep or Replace Analysis Req B Compute the income increase or decrease from…
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