Kinder Enterprises relies heavily on a copier machine to process its paperwork. Recently the copy clerk has not been able to process all the necessary copies within the regular work week. Management is considering updating the copier machine with a faster model.

                                                                        Current Copier               New Model

Original purchase cost                                         $10,000                       $20,000

Accumulated depreciation                                      8,000                             -

Estimated operating costs (annual)                       7,000                           2,600

Useful life                                                              5 years                         5 years

If sold now, the current copier would have a salvage value of $1,000. 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 five years.

Instructions

Prepare an analysis to show whether the company should retain or replace the machine.