Crane Company is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $200000 $400000 Accumulated Depreciation 60000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $160000 $120000 If the old machine is replaced, it can be sold for $14000. The company uses straight-line depreciation with a zero salvage value for all of its assets. The net advantage (disadvantage) of replacing the old machine is

Crane Company

The net advantage of replacing the old machine is:

= $154,000

Explanation:

a) Data and Calculations:

                                       Old Machine      New Machine

Price                                  $200,000             $400,000

Accumulated Depreciation  60,000                      -0-

Remaining useful life          10 years                      -0-

Useful life                                  -0-                 10 years

Annual operating costs   $160,000              $120,000

Relevant costs:

                                                Old Machine      New Machine

Annual operating costs           $160,000             $120,000

Total annual operating costs 1,600,000            1,200,000 ($120,000 * 10)

Relevant cost Price                    140,000              400,000

Sales value of old machine                                    (14,000)

Total costs                            $1,740,000         $1,586,000

The net advantage of replacing the old machine is $154,000 ($1,740,000 - $1,586,000)

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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