Answer:
The old machine should replace with new machine because there is cost saving of $106,000.
Explanation:
The computation of the total cost is shown below:-
Particulars Old machine Purchase new machine
Original cost $720,000 $480,000
Current value $400,000
Today Disposable value $170,000
In 9 years Disposable value $20,000 $130,000
Annual operating cost $60,000 $26,000
Total Cost $690,000 $584,000
So, the total cost of old machine is $690,000 and the Purchase new machine cost is $584,000. So, the old machine should replace with new machine because there is cost saving of $106,000.
