Answer: Option (e) is correct.
Explanation:
Given that,
Book value of manufacturing equipment = $35,500
Current market value of equipment = $21,100
Cost of new machine = $111,000
cash received from trading old machine = $21,100
Variable manufacturing costs of new machine reduce by $18,100 per year over the four-year =
Total increase/decrease in net income = Cost of new machine + cash received from trading old machine + Reduction in Variable manufacturing costs
= ($111,000) + $21,100 + $18,100 × 4
= ($17,500)
Note: Bracket represents the negative values.
∴ The total decrease in net income by replacing the current machine with the new machine is $17,500.
