Answer:
Crane Company
The net advantage of replacing the old machine is:
= $154,000
Explanation:
a) Data and Calculations:
Old Machine New Machine
Price $200,000 $400,000
Accumulated Depreciation 60,000 -0-
Remaining useful life 10 years -0-
Useful life -0- 10 years
Annual operating costs $160,000 $120,000
Relevant costs:
Old Machine New Machine
Annual operating costs $160,000 $120,000
Total annual operating costs 1,600,000 1,200,000 ($120,000 * 10)
Relevant cost Price 140,000 400,000
Sales value of old machine (14,000)
Total costs $1,740,000 $1,586,000
The net advantage of replacing the old machine is $154,000 ($1,740,000 - $1,586,000)
