At the beginning of the year, Local Plastics Pty Ltd purchased the LM450 special-purpose moulding machine...

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At the beginning of the year, Local Plastics Pty Ltd purchased the LM450 special-purpose moulding machine for $600,000 including installation. The budgeted income statement for the coming year, including depreciation on the LM450, is shown below: Revenue Cash operating expenses Straight-line depreciation Operating income $ 2,000,000 1,260,000 200,000 540,000 Immediately after the purchase of the LM450, the more advanced TM1600 special-purpose moulding machine becomes available at a cost of $750,000 including installation. Both machines would be ready for operation on 1 June 2023 and have a useful life of three years with zero residual value. The cash operating expense for the TM1600 is estimated to be $260,000 per year less than for the LM450. The LM450 could be sold for $120,000. There is no trade-in option. Ignoring the time value of money, how much would the company expect to save over the 3-year period, if it immediately replaces the LM450 with the TM1600? At the beginning of the year, Local Plastics Pty Ltd purchased the LM450 special-purpose moulding machine for $600,000 including installation. The budgeted income statement for the coming year, including depreciation on the LM450, is shown below: Revenue Cash operating expenses Straight-line depreciation Operating income $ 2,000,000 1,260,000 200,000 540,000 Immediately after the purchase of the LM450, the more advanced TM1600 special-purpose moulding machine becomes available at a cost of $750,000 including installation. Both machines would be ready for operation on 1 June 2023 and have a useful life of three years with zero residual value. The cash operating expense for the TM1600 is estimated to be $260,000 per year less than for the LM450. The LM450 could be sold for $120,000. There is no trade-in option. Ignoring the time value of money, how much would the company expect to save over the 3-year period, if it immediately replaces the LM450 with the TM1600?

Answer rating: 100% (QA)

To calculate the savings over the 3year period we need to consider the cost ... View the full answer