Question

Chris Co. is considering replacing an old machine. The old machine was purchased for $100,000 and has a book value of $40,000 and should last four more years. Chris Co. believes that it can sell the old machine for $50,000. The new machine cost $80,000 and will have a 4-year life and a $10,000 salvage value. Currently, it cost $20,000 annually to operate the old machine. The new machine is more efficient and should reduce operating cost by 50%. Based on quantitative analysis, calculate the relevant costs and indicate if Chris Co. should replace the old machine?
a. No, because the relevant cost of the new machine is $10,000 more than the cost of the old machine.
b. Yes, because the relevant cost of the new machine is $10,000 less than the cost of the old machine.
c. No, because the relevant cost of the new machine is $20,000 more than the cost of the old machine.
d. Yes, because the relevant cost of the new machine is $20,000 less than the cost of the old machine.

Answer 1

Answer:

The answer is letter A.

Explanation:

No, because the relevant cost of the new machine is $10,000 more than the cost of the old machine.