Melody and Harmony apparel has been using the same machines to make its apparel for the last five years. Leah, a cost-efficiency consultant based in suburbs on Chicago, has suggested that production costs may be reduced by purchasing more technologically advanced machinery. The old machines cost the company $270,000. The old machines presently have a book value of $127,000 and a market value of $19,000. They are expected to have a five-year remaining life and zero salvage value. The new machines would cost the company $170,000 and have operating expenses of $19,000 a year. The new machines are expected to have a five-year useful life and no salvage value. The operating expenses associated with the old machines are $37,000 a year. The new machines are expected to increase quality, justifying a price increase and thereby increasing sales revenue by $17,000 a year. Select the true statement.

Multiple Choice

• The company will be $24,000 better off over the 5 year period if it replaces the old equipment.

• The company will be $54,000 better off over the 5 year period if it keeps the old equipment.

• The company will be $19,000 better off over the 5 year period if it replaces the old equipment.

• The company will be $35,000 better off over the 5 year period if it replaces the old equipment.