Q3. Madison Optometry is considering the purchase of a new lens grinder to replace a machine...

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Q3. Madison Optometry is considering the purchase of a new lens grinder to replace a machine that was purchased several years ago. Selected information on the two machines is given below: Original cost when new Accumulated depreciation to date Current salvage value Annual operating cost Remaining useful life Old Machine $80,000 32,000 26,000 4,000 4 years New Machine $85,000 3,000 4 years Ignore income taxes and the time value of money in this problem. Required: Compute the total advantage or disadvantage of using the new machine instead of the old machine over the next four years. (10 marks) Be careful with depreciation in this question. You are looking at the decision in terms of cashflows rather than traditional accounting expense recording. Depreciation is designed to recover, over time, the cash expended for an asset purchase. Q3. Madison Optometry is considering the purchase of a new lens grinder to replace a machine that was purchased several years ago. Selected information on the two machines is given below: Original cost when new Accumulated depreciation to date Current salvage value Annual operating cost Remaining useful life Old Machine $80,000 32,000 26,000 4,000 4 years New Machine $85,000 3,000 4 years Ignore income taxes and the time value of money in this problem. Required: Compute the total advantage or disadvantage of using the new machine instead of the old machine over the next four years. (10 marks) Be careful with depreciation in this question. You are looking at the decision in terms of cashflows rather than traditional accounting expense recording. Depreciation is designed to recover, over time, the cash expended for an asset purchase.

Answer rating: 100% (QA)

SOLUTION Analysis OLD MACHINE NEW MACHINE PURCHASE PRICE 85000 SALV... View the full answer