Question: A machine purchased three years ago for $310,000 has a current book value using straight-line depreciation of $184,000; its operating expenses are $30,000 per year. A replacement machine would cost $228,000, have a useful life of nine years, and would require $11,000 per year in operating expenses. It has an expected salvage value of $70,000 after nine years. The current disposal value of the old machine is $81,000; if it is kept 9 more years, its residual value would be $17,000.
Required: a. Calculate the total costs in keeping the old machine and purchase a new machine.
b. Should the old machine be replaced?
No
Yes