Kobe Company has a factory machine with a book value of $90,000 and a remaining useful life of 5 years. It can be sold for $30,000. A new machine is available at a cost of $300,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000 to $500,000. In the table below, prepare an analysis showing whether the old machine should be retained or replaced. NET 4-YEAR REPLACE EQUIPMENT RETAIN INCOME EQUIPMENT INCREASE / (DECREASE) Variable manufacturing costs for 4 years: New machine cost Sale proceeds from old machine. Total What should be the decision of the company? Why? Justify your answer.

Kobe Company has a factory machine with a book value of $90,000 and a remaining useful life of 5 years. It can be sold for $30,000. A new machine is available at a cost of $300,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000 to $500,000. In the table below, prepare an analysis showing whether the old machine should be retained or replaced. NET 4-YEAR REPLACE EQUIPMENT RETAIN INCOME EQUIPMENT INCREASE / (DECREASE) Variable manufacturing costs for 4 years: New machine cost Sale proceeds from old machine. Total What should be the decision of the company? Why? Justify your answer.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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