Multiple Choice Question 149 Swifty Corporation is contempla

Multiple Choice Question 149

Swifty Corporation is contemplating the replacement of an old machine with a new one. The following information has been gathered:

If the old machine is replaced, it can be sold for $24000. The company uses straight-line depreciation with a zero salvage value for all of its assets.

The net advantage (disadvantage) of replacing the old machine is

	Old Machine	New Machine
Price	$282000	$582000
Accumulated Depreciation	84600	-0-
Remaining useful life	10 years	-0-
Useful life	-0-	10 years
Annual operating costs	$225600	$165600

Solution

Purchase price of new machine -582000 Savings in Annual operating costs 600000 =(225600-165600)*10 Salvage value of Old Machine 24000 Net advantage (disadvantage) of replacing the old machine 42000 Option 1 is correct