Annual versus cumulative data for replacement decision Because of rapidly advancing technology, Andersen Publications Corporation is considering replacing its existing typesetting machine with leased equipment The old machine, purchased two years ago, has an expected useful life of six years and is...

a The original cost and book value are sunk costs that are not relevant The annual ...

Annual versus cumulative data for replacement decision Because of rapidly advancing technology, Andersen Publications Corporation is considering

Question:

Annual versus cumulative data for replacement decision Because of rapidly advancing technology, Andersen Publications is considering replacing its existing typesetting machine with leased equipment. The old machine, purchased two years ago, has an expected useful life of six years and is in good condition. Apparently, it will continue to perform as expected for the remaining four years of its expected useful life. A four year lease for equipment with comparable productivity can be obtained for $14,000 per year. The following data apply to the old machine:

Original cost Accumulated depreciation Current market value Estimated salvage value $160,000 74,000 10,000

Required
a. Determine the annual opportunity cost of using the old machine. Based on your computations, recommend whether to replace it.
b. Determine the total cost of the lease over the four-year contract. Based on your computations, recommend whether to replace the old machine.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...