Reference no: EM132601

Question:

Required: GH Company is trying to decide whether to replace a existing piece of machinery with a new machine. Using the below data, evaluate the relevant costs of the old machine and the new machine. Should GH Company purchase the new machine?

Old Machine      New machine

Original cost       100,000

Accumulated

depreciation      (50,000)              

Book value 50,000

Market value (now) 25,000 30,000

Salvage value (in 5 years)             5,000 8,000

Annual depreciation expense    11,000

Operating expenses      

Per year               9,000 4,500

Times number of years 4 4

Total operating expenses             36,000 18,000