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Determine whether current sewing machine should be replaced

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Sew It Inc. has an industrial sewing machine that it has used for the past 5 years. The company is considering replacing the machine with a faster model as it is starting to break down more often. As it will be faster and eliminate overtime, it will increase revenues by $4,450 per year over its useful life of 7 years.

                                         Current Machine                 New Machine

Original purchase cost       $29,900                        $26,700

Accumulated depreciation      $23,900                        -

Useful life                                7 years                   7 years

If sold now, the current sewing machine would have a salvage value of $5,500. If it is used for the remainder of its useful life, the current sewing machine would have zero salvage value. The new sewing machine is expected to have zero salvage value after 7 years.

Problem 1: Determine whether the current sewing machine should be replaced. (Ignore the time value of money.) (If an amount reduces the net income then enter with a negative sign preceding the number, e.g. -15,000 or parenthesis, e.g. (15,000).)

Reference no: EM132672252

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