Bonita Industries is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New MachinePrice$250000 $500000Accumulated Depreciation75000 -0-Remaining useful life10 years -0-Useful life-0- 10 yearsAnnual operating costs$205000 $150000If the old machine is replaced, it can be sold for $20000. The company uses straight-line depreciation with a zero salvage value for all of its assets.The net advantage (disadvantage) of replacing the old machine is$(50000)$(5000)$20500$70000

This question is related to capital budgeting in financial management, in which we have to calculate…

Answered: Bonita Industries is contemplating the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section9.A: Depreciation

Problem 1P

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Bonita Industries is contemplating the replacement of an old machine with a new one. The following information has been gathered:

	Old Machine	New Machine
Price	$250000	$500000
Accumulated Depreciation	75000	-0-
Remaining useful life	10 years	-0-
Useful life	-0-	10 years
Annual operating costs	$205000	$150000

If the old machine is replaced, it can be sold for $20000. 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

$(50000)

$(5000)

$20500

$70000

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