Twyla Enterprises uses a word processing 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 Machine		New Machine
	Original purchase cost	$15,600		$25,700
	Accumulated depreciation	6,200		---
	Estimated operating costs	23,100		18,800
	Useful life	5 years		5 years

If sold now, the current machine would have a salvage value of $5,100. 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.

Complete the analysis to determine if the current machine should be replaced. (Ignore the time value of money. If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number eg -45 or parentheses eg (45). To enter salvage value amount in columns “Retain Machine” and “Replace Machine”, use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)

 

	Retain Machine	Replace Machine	Net IncomeIncrease (Decrease)
Operating costs	$	$	$
New machine cost
Salvage value (old)
Total	$	$	$

The current machine should be replacedretained.