Reference no: EM132504662

Point 1: ABC Manufacturing Limited has a machine currently in use that was originally purchased three years ago for $120,000. The firm depreciates the machine on the straight-line basis using a five-year recovery period. The present machine will last for the next five years or, once removal and clean-up costs are taken into consideration, it could be sold now for $70,000.

Point 2: ABC can buy a new machine today for a net price of $145,000 plus installation costs of $15,000. The proposed machine will be depreciated using a five-year straight-line depreciation period. If the firm acquires the new machine, its working capital needs will change: accounts receivable will increase $15,000, inventory will increase $19,000 and accounts payable will increase $16,000.

Question 1: Create depreciation schedule for both the proposed and the present machine. Both machines are depreciated using a five-year recovery period. Remember the present machine has only three years of depreciation remaining.