Ivanhoe 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, Ivanhoe Roofing spent $74.400 refurbishing the lift. It has just determined that another $41,500 of repair wor required. Alternatively, it has found a newer used lift that is for sale for $177,000. The company estimates that both lifts would have useful lives years. The new lift is more efficient and thus would reduce operating expenses by about $24,800 per year. Ivanhoe Roofing could also rent out th new lift for about $10,500 per year. The old lift is not suitable for rental. The old lift could currently be sold for $26,000 if the new lift is purchase Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a neg sigm preceding the number es-45 or parentheses es. (45)) Retain Replace Net Income
Ivanhoe 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, Ivanhoe Roofing spent $74.400 refurbishing the lift. It has just determined that another $41,500 of repair wor required. Alternatively, it has found a newer used lift that is for sale for $177,000. The company estimates that both lifts would have useful lives years. The new lift is more efficient and thus would reduce operating expenses by about $24,800 per year. Ivanhoe Roofing could also rent out th new lift for about $10,500 per year. The old lift is not suitable for rental. The old lift could currently be sold for $26,000 if the new lift is purchase Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a neg sigm preceding the number es-45 or parentheses es. (45)) Retain Replace Net Income
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Ivanhoe 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, Ivanhoe Roofing spent $74,400 refurbishing the lift. It has just determined that another $41,500 of repair work is
required. Alternatively, it has found a newer used lift that is for sale for $177,000. The company estimates that both lifts would have useful lives of 6
years. The new lift is more efficient and thus would reduce operating expenses by about $24,800 per year. Ivanhoe Roofing could also rent out the
new lift for about $10,500 per year. The old lift is not suitable for rental. The old lift could currently be sold for $26,000 if the new lift is purchased.
Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative
sigm preceding the number es-45 or parentheses es (45))
Retain
Equipment
Replace
Equipment
Operating expenses
$
148800
Net Income
Increase (Decrease)
148800
$
0
Repair costs
41500
0
41500
Rental revenue
0
-63000
63000
New machine cost
0
177000
-177000
Sale of old machine
0
-26000
26000
Total cost
$
190300
$
236800
-46500
Should company repair or replace the equipment?
The equipment should
❤be replaced.
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