Amanda Company is considering the replacement of a machine that is presently used in production. The following data are available: Old Machine New Machine Original cost $200,000 $160,000 Useful life in years 10 5 Current age in years 5 0 Book value $100,000 minus Disposal value now $32,000 minus Disposal value in 5 years 0 0 Annual cash operating costs $20,000 $14,000 Adding all five years together, the total relevant costs to consider if the new machine is purchased is

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Business

Diego Meadows

2 October, 05:44

Amanda Company is considering the replacement of a machine that is presently used in production. The following data are available: Old Machine New Machine Original cost $200,000 $160,000 Useful life in years 10 5 Current age in years 5 0 Book value $100,000 minus Disposal value now $32,000 minus Disposal value in 5 years 0 0 Annual cash operating costs $20,000 $14,000 Adding all five years together, the total relevant costs to consider if the new machine is purchased is

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Jimena Burch · Answer 1

New machine cost = 160,000

Annual cash operating cost = 14,000

Disposal value = 32,000

Calculations:

Original cost of New Machine 160,000

Total Annual cash operating costs 70000 [14000*5 ]

Less: Disposal value of Old Machine (32,000)

Total relevant costs if the new machine is purchased 198,000