Answer:
The company should replace the equipment.
Explanation:
The cost analysis is calculated as follows;
Retain Replace Net Income
Equipment Equipment Increase (Decrease)
Operating expenses $146,400 0 $146,400
($24,400*6)
Repair costs $39,000 0 $39,000
Rental revenue 0 -$60000 $60,000
($10,000*6)
New machine cost 0 $166,500 -$166,500
Sale of old machine
0 -$24,500 $24,500
Total cost $185,400 $82,000 $103,400
From the calculation above, the equipment should be replaced as it incur a lesser cost compare to when it is retained.
