camdenccinstructure.com/courses/3788/asSignments/35976Waterway Industries is contemplating the replacement of an oldmachine with a new one. The following information has beengathered:Old Machine New Machine$900000$450000Price135000Accumulated Depreciation-0-10 years0-Remaining useful life-0-10 yearsUseful lifeAnnual operating costs$360000$270000If the old machine is replaced, it can be sold for $36000. Thecompany uses straight-line depreciation with a zero salvage valuefor all of its assetsWhich of the following amounts is relevant to the replacementdecision?O $135000O$90000O$315000$450000

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Asked Nov 10, 2019
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camdenccinstructure.com/courses/3788/asSignments/35976
Waterway Industries is contemplating the replacement of an old
machine with a new one. The following information has been
gathered:
Old Machine New Machine
$900000
$450000
Price
135000
Accumulated Depreciation
-0-
10 years
0-
Remaining useful life
-0-
10 years
Useful life
Annual operating costs
$360000
$270000
If the old machine is replaced, it can be sold for $36000. The
company uses straight-line depreciation with a zero salvage value
for all of its assets
Which of the following amounts is relevant to the replacement
decision?
O $135000
O$90000
O$315000
$450000
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camdenccinstructure.com/courses/3788/asSignments/35976 Waterway Industries is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine $900000 $450000 Price 135000 Accumulated Depreciation -0- 10 years 0- Remaining useful life -0- 10 years Useful life Annual operating costs $360000 $270000 If the old machine is replaced, it can be sold for $36000. The company uses straight-line depreciation with a zero salvage value for all of its assets Which of the following amounts is relevant to the replacement decision? O $135000 O$90000 O$315000 $450000

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Expert Answer

Step 1

Calculate the amount relevant to replacement.

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Particulars Old Machine New Machine Operating expenses ADD: Depreciation (1) & (2) Total expenses $450,000 $900,000 $90.000 990,000 $31,500 $481,500 Net decrease in annual -$508,500 operating expenses ($481,500- $990,000) Net decrease in operating $5,085,000 expenses over 10 years life (- (-$508,500*10) Less: Loss on disposal of old ($279,000) machine Net amount of replacing old 4,806,000 machine

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Step 2

Working Notes:

(1) Compute old machine depreci...

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Price -Accumulated depreciation Old machine depreciation- Remaining useful life $450,000 135, 000 10 $31,500

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