Question

Darcy Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Darcy Roofing spent $72,600 refurbishing the lift. It has just determined that another $38,500 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $163,000. The company estimates that both lifts would have useful lives of 6 years. The new lift is more efficient and thus would reduce operating expenses by about $24,200 per year. Darcy Roofing could also rent out the new lift for about $9,500 per year. The old lift is not suitable for rental. The old lift could currently be sold for $24,000 if the new lift is purchased.
Prepare an incremental analysis for the life of the machines showing whether the company should replace the equipment. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Retain
Equipment Replace
Equipment Net Income
Increase (Decrease)
Operating expenses $
Darcy Roofing is faced with a decision. The compan
$ Darcy Roofing is faced with a decision. The compan
$ Darcy Roofing is faced with a decision. The compan
Repair costs
Darcy Roofing is faced with a decision. The compan
Darcy Roofing is faced with a decision. The compan
Darcy Roofing is faced with a decision. The compan
Rental revenue
Darcy Roofing is faced with a decision. The compan
Darcy Roofing is faced with a decision. The compan
Darcy Roofing is faced with a decision. The compan
New machine cost
Darcy Roofing is faced with a decision. The compan
Darcy Roofing is faced with a decision. The compan
Darcy Roofing is faced with a decision. The compan
Sale of old machine
Darcy Roofing is faced with a decision. The compan
Darcy Roofing is faced with a decision. The compan
Darcy Roofing is faced with a decision. The compan
Total cost $
Darcy Roofing is faced with a decision. The compan
$ Darcy Roofing is faced with a decision. The compan
$ Darcy Roofing is faced with a decision. The compan

Answer 1

Answer:

$ 102,100

Explanation:

Based on the scenario been described in the question the incremental Analysis for replacement of old equipment:

Cost of New used lift

$ 190,500

Saving in Incremental Cost of Repair of old lift

$ (45,000)

Reduction in Annual operating expenses = $25,600 * 6 years

$ (153,600)

Annual Rent revenue from new used lift = $11,000*6 years

$ (66,000)

Sale price of old lift

$ (28,000)

Saving in Incremental Costs

$ (102,100)

Net income increase

$ 102,100

Hence, the net income shall increase by $102,100 if the old liftis replaced.