Bach Company paid $120,000 to purchase a machine on January 1, 2012. During 2014, a technological breakthrough

Question:

Bach Company paid $120,000 to purchase a machine on January 1, 2012. During 2014, a technological breakthrough resulted in the development of a new machine that costs $150,000. The old machine costs $50,000 per year to operate, but the new machine could be operated for only $18,000 per year. The new machine, which will be available for delivery on January 1, 2015, has an expected useful life of four years. The old machine is more durable and is expected to have a remaining useful life of four years. The current market value of the old machine is $40,000. The expected of both machines is zero.

Required
Based on this information, recommend whether to replace the machine. Support your recommendation with appropriate computations.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...