Three years ago the TCBY at the local mall bought a frozenyogurt
machine for $8,000. A salesperson has just suggested to the manager that
she replace the machine with a new $12,500 machine. The manager has gathered
the following data:

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Original cost Useful life in years OLD MACHINE NEW MACHINE $8,000 8 $12,500 5 Current age in years 3 Useful life remaining in years 5 0 5 Accumulated amortization $3,000 Not acquired yet Book value $5,000 Not acquired yet Disposal value (in cash) now $2,000 Not acquired yet Disposal value in 5 years 0 0 Annual cash operating cost $4,500 $2,000 1. Compute the difference in total costs over the next five years under both alternatives, that is, keeping the original machine or replacing it with the new machine. Ignore taxes. 2. The manager replaces the original machine. Compute the "loss on dis- posal" of the original machine. How does this amount affect your com- putation in requirement 1? Explain.