Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing.

If sold now, the current machine would have a salvage value of $6,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years.

Instructions
Should the current machine bereplaced?

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New Machine $25,000 Original purchase cost Accumulated depreciation Estimated annual operating costs Useful life Current Machine $15,000 6,000 $25,000 5 years $20,000 5 years