Question

Kenta Electronics purchased a manufacturing plant four years ago for $9,000,000. The plant costs $2,000,000 per year to operate. Its current book value using straight-line depreciation is $7,000,000. Kenta could purchase a replacement plant for $16,000,000 that would have a useful life of 10 years. Because of new technology, the replacement plant would require only $600,000 per year in operating expenses. It would have an expected salvage value of $4,000,000 after 10 years. The current disposal value of the old plant is $1,200,000, and if Kenta keeps it 10 more years, its residual value would be $300,000.

Required
Based on this information, should Kenta replace the old plant? Support your answer with appropriate computations.



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  • CreatedFebruary 07, 2014
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