Sunland 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, Sunland Roofing spent $70,200 refurbishing the lift. It has just determined that another $35,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $149,500. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $98,000 to $74,600 each year. Sunland Roofing could also rent out the new lift for about $9,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $22,000 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses eg. (45))
Sunland 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, Sunland Roofing spent $70,200 refurbishing the lift. It has just determined that another $35,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $149,500. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $98,000 to $74,600 each year. Sunland Roofing could also rent out the new lift for about $9,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $22,000 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses eg. (45))
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
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Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 20P: The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting,...
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Rakesh
![Sunland 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, Sunland Roofing spent $70,200 refurbishing the lift. It has just determined that another
$35,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $149,500. The company estimates
that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from
$98,000 to $74,600 each year. Sunland Roofing could also rent out the new lift for about $9,000 per year. The old lift is not suitable
for rental. The old lift could currently be sold for $22,000 if the new lift is purchased. The new lift and old lift are estimated to have
salvage values of zero if used for another 5 years.
Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using
either a negative sign preceding the number eg. -45 or parentheses eg. (45).)
Operating expenses $
Repair costs
Rental revenue
New machine cost
Sale of old machine
Total cost
Should company repair or replace the equipment?
The equipment
Retain
Equipment
Y
be replaced.
$
$
Replace
Equipment
17
$
Net Income.
Increase (Decrease)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F34562153-0d15-4256-878b-2a4ded8b0177%2Ff9176662-46c8-4311-9f66-d7408dce54f7%2Fj608g7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Sunland 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, Sunland Roofing spent $70,200 refurbishing the lift. It has just determined that another
$35,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $149,500. The company estimates
that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from
$98,000 to $74,600 each year. Sunland Roofing could also rent out the new lift for about $9,000 per year. The old lift is not suitable
for rental. The old lift could currently be sold for $22,000 if the new lift is purchased. The new lift and old lift are estimated to have
salvage values of zero if used for another 5 years.
Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using
either a negative sign preceding the number eg. -45 or parentheses eg. (45).)
Operating expenses $
Repair costs
Rental revenue
New machine cost
Sale of old machine
Total cost
Should company repair or replace the equipment?
The equipment
Retain
Equipment
Y
be replaced.
$
$
Replace
Equipment
17
$
Net Income.
Increase (Decrease)
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