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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 $45,000 and a remaining useful life of four years. It can be sold now for $55,000. Variable manufacturing costs are $45,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Machine A Purchase price Variable manufacturing costs per year $ 124,000 21,000 Machine B $ 137,000 12,000 (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? Complete this question by entering your answers in the tabs below. Req A Req B Req C and D Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted should be indicated with a minus sign.) Machine A: Keep or Replace Analysis Keep Replace Income Increase (Decrease) from Replacing Revenues Sale of existing machine Costs Purchase of new machine Variable manufacturing costs Income (loss) $ 0 $ 0 $ < Req A Req B > 0

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 $45,000 and a remaining useful life of four years. It can be sold now for $55,000. Variable manufacturing costs are $45,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Machine A Purchase price Variable manufacturing costs per year $ 124,000 21,000 Machine B $ 137,000 12,000 (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? Complete this question by entering your answers in the tabs below. Req A Req B Req C and D Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted should be indicated with a minus sign.) Machine A: Keep or Replace Analysis Keep Replace Income Increase (Decrease) from Replacing Revenues Sale of existing machine Costs Purchase of new machine Variable manufacturing costs Income (loss) $ 0 $ 0 $ < Req A Req B > 0

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter10: Project Cash Flows And Risk
Section: Chapter Questions
Problem 13PROB
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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 $45,000 and a remaining useful life of four years. It can be sold now for $55,000. Variable manufacturing costs are $45,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Machine A Purchase price Variable manufacturing costs per year $ 124,000 21,000 Machine B $ 137,000 12,000 (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? Complete this question by entering your answers in the tabs below. Req A Req B Req C and D Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted should be indicated with a minus sign.) Machine A: Keep or Replace Analysis Keep Replace Income Increase (Decrease) from Replacing Revenues Sale of existing machine Costs Purchase of new machine Variable manufacturing costs Income (loss) $ 0 $ 0 $ < Req A Req B > 0
Transcribed Image Text: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 $45,000 and a remaining useful life of four years. It can be sold now for $55,000. Variable manufacturing costs are $45,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Machine A Purchase price Variable manufacturing costs per year $ 124,000 21,000 Machine B $ 137,000 12,000 (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? Complete this question by entering your answers in the tabs below. Req A Req B Req C and D Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted should be indicated with a minus sign.) Machine A: Keep or Replace Analysis Keep Replace Income Increase (Decrease) from Replacing Revenues Sale of existing machine Costs Purchase of new machine Variable manufacturing costs Income (loss) $ 0 $ 0 $ < Req A Req B > 0
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