Rory Company has an old machine with a book value of $77,000 and a remaining five-year...

 

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Rory Company has an old machine with a book value of $77,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $106,000. Rory can sell its old machine now for $80,000. The old machine has variable manufacturing costs of $33,000 per year. The new machine will reduce variable manufacturing costs by $13,200 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? Rory Company has an old machine with a book value of $77,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $106,000. Rory can sell its old machine now for $80,000. The old machine has variable manufacturing costs of $33,000 per year. The new machine will reduce variable manufacturing costs by $13,200 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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To determine whether the old machine should be replaced with the new one we need to perform a keep o... View the full answer