7-14

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.

		Current Machine			New Machine
Original purchase cost		$14,830			$25,070
Accumulated depreciation		$6,640			_
Estimated annual operating costs		$24,570			$19,530
Useful life		5 years			5 years

If sold now, the current machine would have a salvage value of $10,630. 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. Should the current machine be replaced? (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Retain Machine Replace Machine Net Income Increase (Decrease) Operating costs $ $ $ New machine cost Salvage value (old) Total $ $ $

The current machine should be .