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elena-s [515]
2 years ago
14

Park Ridge Company is considering the replacement of a machine that is presently used in production. The following data are avai

lable:
Old Machine New Machine
Original cost $200,000 $160,000
Useful life in years 10 5
Current age in years 5 0
Book value $100,000 -
Disposal value now $32,000 -
Disposal value in 5 years 0 0
Annual cash operating costs $20,000 $14,000

Adding all five years together, the total relevant costs to consider if the old machine is kept ____
Business
1 answer:
Ainat [17]2 years ago
4 0

Answer:

The Relevant Cost for Five Years     $52,000.00

Explanation:

‘Relevant costs’ can be defined as any cost relevant to a decision. A matter is relevant if there is a change in cash flow that is caused by the decision.

The Park Ridge Company's Relevant Old Machine Cost for Five Years is

Disposal value now                      $32,000.00  

Annual cash operating costs      $20,000.00

Relevant Cost for Five Years     $52,000.00

Old Machine

Original cost $200,000 is <em>Sunk Cost</em>

Useful life in years 10 5   - <em>Will be used for the calculation of Depreciation, Therefore is an Irrelevant cost</em>

Current age in years 5 0  - <em>irrelevant year</em>

Book value $100,000 -  <em>are not cash flows and so are not relevant. </em>

Disposal value now $32,000 -  

Disposal value in 5 years 0 <em>is without a cost</em>

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