Rory Company has an old machine with a book value of $79,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $105,000. Rory can sell its old machine now for $70,000. The old machine has variable manufacturing costs of $34,000 per year. The new machine will reduce variable manufacturing costs by $13,600 per year over its five-year useful life.

(a) Prepare a keep or replace analysis of income effects for the machines.
(b) Should the old machine be replaced?

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Reduction in variable cost 136005 6800... View the full answer