Current operating expenses would remain the same

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Reference no: EM13154447

1. A firm has to make a decision whether to replace a machine or keep it for 7 more years. It has identified 5 alternatives:

a. Spend $44K on repairs now and charge it as an one-time annual operating expense for this taxation year. Current operating expenses would remain the same.

b. Replace the machine with a new one costing $49K. Depreciation would be SL to zero over the 7 years of its life. Operating costs would be reduced by $6Kpa.

c. Spend $56K to buy specialized equipment which would reduce operating costs by $12Kpa. The machine would be depreciated 7 years using SOYD with no salvage value.

d. Replace the machine with a new one costing $49K. Depreciation would be SL to zero over the 7 years of its life. Operating costs would be reduced by $7Kpa.

e. Do nothing. Annual operating costs would increase $8Kpa.

Reference no: EM13154447

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