Current book value using straight line depreciation

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Reference no: EM131023352

Kenta Electronics purchased a manufacturing plant four years ago for $9,000,000. The plant cost $2.000,000 per year to operate. Its current book value using straight line depreciation is $7,000,000. Kenta could purchase a replacement plant for $16,000,000 that would have a useful life of 10 years. Because of new technology, the replacement plant would require only $600,000 after 10 years. The current disposal value of the old plant is $1,200,000, and if Kenta keeps it 10 more years, its residual value would be $300,000.

Based on this information, should Kenta replace the old plant? Support your answer with appropriate computations.

Reference no: EM131023352

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