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Compute the differential effect on income

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Question - Starling Co. is considering disposing of a machine with a book value of $22,800 and estimated remaining life of five years. The old machine can be sold for $5,500. A new high-speed machine can be purchased at a cost of 67,700. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $22,700 to $19,000 if the new machine is purchased. Compute the differential effect on income for the new machine for the entire five years?

a. increase of $56,810

b. decrease of $56,810

c. increase of $43,700

d. decrease of $43,700

Reference no: EM132198304

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