Question

Sprockets Corporation is thinking about replacing a piece of manufacturing equipment with a remaining useful life of six years and a $0 salvage value. The book value of the equipment is $55,000, and the machine could be sold in its current condition for $29,000. The new machine would cost $125,000 and would have no salvage value at the end of its six-year useful life. With the new machine, Sprockets’ annual variable operating costs would drop from $78,000 to $65,000. Given these data, Sprockets would ________ over the next six years if it purchases the new machine.

Answer 1

Answer:

Decrease its total net income by $18,000.