LN Manufacturing is deciding whether to keep or replace an old machine. It obtains the following information: Old Machine New MachineOriginal cost$10,700$9,000Useful life10 years3 yearsCurrentage 7 years0 yearsRemaining useful life3 years3 yearsAccumulated depreciation$7,490Not acquired yetBook value$3,210Not acquired yetCurrent disposal value (in cash) $2,200Not acquired yetTerminal disposal value (3 years from now)$0$0Annual cash operating costs$17,500$15,500 LN Manufacturing uses straight-line depreciation. Ignore the time value of money and income taxes.Should LN Manufacturing replace the old machine? Explain.

New machine net cost=9000-2200=6800

Answered: LN Manufacturing is deciding whether to…

11th Edition

ISBN:9781337680059

Author:Gilbertson

Publisher:Gilbertson

Chapter19: Accounting For Plant Assets, Depreciation, And Intangible Assets

Section: Chapter Questions

Problem 1AFE

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Question

LN Manufacturing is deciding whether to keep or replace an old machine. It obtains the following information:

	Old Machine	New Machine
Original cost	$10,700	$9,000
Useful life	10 years	3 years
Current	age 7 years	0 years
Remaining useful life	3 years	3 years
Accumulated depreciation	$7,490	Not acquired yet
Book value	$3,210	Not acquired yet
Current disposal value (in cash	) $2,200	Not acquired yet
Terminal disposal value (3 years from now)	$0	$0
Annual cash operating costs	$17,500	$15,500