Jack Pinno, Vice President of Production at Greco Corporation, is considering changing the company€™s capital acquisition and use policy. Greco€™s policy has been to use equipment through its useful life and then to scrap it. Greco uses straight- line depreciation. Pinno has noticed that repair and downtime of equipment dramatically increases in the last few years of the equipment€™s life, leading to lost sales and higher production costs. He is proposing to use the equipment for a shorter period and then sell it in the used equipment market. He would like to better understand the financial statement effects of changing the policy. He has asked you to analyze the following information and financial statement effects in net income and cash flows.

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Current Proposed Estimated Cost $10,000 $10,000 0 $3,000 (based Salvage Value on current price for similar used equipment) 7 years Useful life Annual repairs and maintenano9 Years 1-2 Years 3-7 Years 8-10 10 years S 250 325 625 S 250 325