Clown Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine has a book value of $5,000 and its remaining useful life is 5 years. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 with annual operating costs of $1,500. The new machine has an estimated useful life of 5 years. Should the old machine be replaced? a) Please type the appropriate answer in each available space of the "Differential Analysis" table below. Alternative 1 Alternative 2 Differential Effect Revenue %24 24 $ Costs: Purchase Price $24 24 24 Variable Costs 24 $4 Income/(Loss) $24 $4 b) Decision: Should the old machine be replaced? Type "Replace" or "Do not replace")

Clown Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine has a book value of $5,000 and its remaining useful life is 5 years. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 with annual operating costs of $1,500. The new machine has an estimated useful life of 5 years. Should the old machine be replaced? a) Please type the appropriate answer in each available space of the "Differential Analysis" table below. Alternative 1 Alternative 2 Differential Effect Revenue %24 24 $ Costs: Purchase Price $24 24 24 Variable Costs 24 $4 Income/(Loss) $24 $4 b) Decision: Should the old machine be replaced? Type "Replace" or "Do not replace")

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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