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Item $5$

Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $$50,000$ and a remaining useful life of five years. It can be sold now for $$60,000.$ Variable manufacturing costs are $$50,000$ per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years.

$$Machine AMachine BPurchase price$ $124,000$$ $139,000$Variable manufacturing costs per year$21,00017,000$

$($a$)$ Compute the income increase or decrease from replacing the old machine with Machine A$.$

$($b$)$ Compute the income increase or decrease from replacing the old machine with Machine B$.$

$($c$)$ Should Lopez keep or replace its old machine?

$($d$)$ If the machine should be replaced, which new machine should Lopez purchase?