Prepare an incremental analysis to determine whether the current machine should be replaced.

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 New Machine Machine Original purchase cost $15,000 $25,000 Accumulated depreciation $6,000 _ Estimated annual operating costs $25,000 $20,000 Remaining useful life 5 years 5 years If sold now, the current machine would have a salvage value of $6,000. 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. Prepare an incremental analysis to determine whether the current machine should be replaced. (ln the rst two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. in the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Operating costs New machine cost Salvage value (old) Total $ Retain Machine :n :n Replace Machine 97,500 Net Income Increase (Decrease) 27,500 25,200 25,200 ' 8100 8100 ' 125,000 II 114,600