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Murl Plastics Inc. purchased a new machine one year ago at a cost of $81,000. Although the machine operates well, the president of Murl Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine would slash annual operating costs by two-thirds, as shown in the comparative data below: Purchase cost new Estimated useful life new Annual operating costs Annual straight-line depreciation Remaining book value Salvage value now Salvage value in five years Present Machine $81,000 6 years $56,700 13,500 67,500 13,500 Proposed New Machine $121,500 5 years $ 18,900 24,300 In trying to decide whether to purchase the new machine, the president has prepared the following analysis: Book value of the old machine Less: Salvage value $67,500 13,500 Net loss from disposal $54,000 "Even though the new machine looks good," said the president, "we can't get rid of that old machine if it means taking a huge loss on it. We'll have to use the old machine for at least a few more years. Sales are expected to be $283,500 per year, and selling and administrative expenses are expected to be $170,100 per year, regardless of which machine is used. Required: 1. Prepare a summary income statement covering the next five years, assuming the following: a. The new machine is not purchased. b. The new machine is purchased. (Leave no cells blank - be certain to enter "0" wherever required.) 5 Years Summary Buy New Machine Difference Sales Operating costs Depreciation of the old machine, or loss write- Keep Old Machine $ 1,417,500 283,500 67,500 94,500 Off Selling and administrative expenses Salvage value-old machine Total expenses Net operating income 2. Compute the net advantage of purchasing the new product using relevant costs. Net advantage of purchasing the new machine