Cullumber Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Cullumber Roofing spent $80,400 refurbishing the lift. It has just determined that another $49.500 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $211,000. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $115,000 to $88,200 each year. Cullumber Roofing could also rent out the new lift for about $12,500 per year. The old lift is not suitable for rental. The old lift could currently be sold for $31,000 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses e.g. (45).) Operating expenses Repair costs Rental revenue. New machine cost Sale of old machine Total cost Should company repair or replace the equipment? The equipment eTextbook. Retain Equipment should should not be replaced. Replace Equipment Net Income Increase (Decrease)
Cullumber Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Cullumber Roofing spent $80,400 refurbishing the lift. It has just determined that another $49.500 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $211,000. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $115,000 to $88,200 each year. Cullumber Roofing could also rent out the new lift for about $12,500 per year. The old lift is not suitable for rental. The old lift could currently be sold for $31,000 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses e.g. (45).) Operating expenses Repair costs Rental revenue. New machine cost Sale of old machine Total cost Should company repair or replace the equipment? The equipment eTextbook. Retain Equipment should should not be replaced. Replace Equipment Net Income Increase (Decrease)
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P: St. Johns River Shipyards welding machine is 15 years old, fully depreciated, and has no salvage...
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Transcribed Image Text:Cullumber Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large
homes and commercial properties. Last year, Cullumber Roofing spent $80,400 refurbishing the lift. It has just determined that
another $49.500 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $211,000. The company
estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses
from $115,000 to $88,200 each year. Cullumber Roofing could also rent out the new lift for about $12,500 per year. The old lift is not
suitable for rental. The old lift could currently be sold for $31,000 if the new lift is purchased. The new lift and old lift are estimated to
have salvage values of zero if used for another 5 years.
Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using
either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Operating expenses
Repair costs
Rental revenue
New machine cost
Sale of old machine
Total cost
$
eTextbook
Should company repair or replace the equipment?
The equipment
Retain
Equipment
should
should not
be replaced.
Replace
Equipment
Net Income
Increase (Decrease)
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