Answer:
total cost of old machine $690000 and purchase new machine $584000
replace old machine with new
so cost saving $106000
Explanation:
given data
current book value = $720,000
depreciation = $400,000
operating expenses = $60,000
replacement machine cost = $480,000
operating expenses = $26,000
expected salvage value = $130,000
current disposal value= $170,000
residual value = $20,000
to find out
total costs and Should the old machine be replaced
solution
we find here total cost of old machine and new machine that is
particular old machine new machine
original cost is $720000 $480000
current value is $400000
now disposal val $170000
9 year disposal value $20000 $130000
annual opening cost $60000 $26000
total cost $690000 $584000
so
total cost of old machine $690000 and purchase new machine $584000
so it should be recommend here for replace old machine with new
so cost saving $106000
