1. Tucker Company is considering replacing a machine. The machine had originally cost $12,000. It has accumulated depreciation of $4,000. The current market value of the machine is $7,000. Based on this information alone

the original cost of the asset is relevant to a replacement decision.

the Company should not replace the machine because doing so would require the recognition of a $1,000 loss on the disposal of the machine.

the market value of the machine is relevant to a replacement decision.

the book value of the machine is relevant to a replacement decision.

2.

Hamilton Company is considering replacing old equipment with new equipment. Both pieces of equipment are expected to have a remaining useful life of 4 years. The total cost of operating each piece of equipment over its four year life is summarized below.

Old Equipment			New Equipment
Original cost	$ 95,000		Purchase price	$ 70,000
Original expected salvage value	15,000		Expected salvage value	12,000
Current market value	60,000		Depreciation Expenses ($14,500 x 4)	58,000
Current expected salvage value	5,000		Other Operating Expenses ($21,000 x 4)	84,000
Depreciation expenses (13,750 x 4)	55,000
Other operating expenses (20,000 x 4)	80,000

Based on this information, Hamilton should

acquire the new equipment because it has the lower relevant cost.

retain the existing equipment because it has lower relevant cost.

acquire the new equipment because it is newer and has a longer useful life.

retain the existing equipment because it has a higher market value.

3.

Krauss Company purchased a construction crane three years ago for $180,000. The crane has a current book value of $100,000 and operating expenses excluding depreciation of $12,000 per year. The current market value of this crane is $85,000. If the old crane is kept five more years, its salvage value would be $10,000. A new crane would cost $70,000, have a useful life of five years, and would require $13,000 per year in operating expenses excluding depreciation. The new crane has a salvage value of $20,000 after five years. Based on this information, Krauss should

acquire the new crane because it has the lower relevant cost.

acquire the new crane because it is newer and has a longer useful life.

retain the old crane because it has lower operating expenses.

retain the old crane because it has a higher market value.