Reference no: EM132640109

Twyla Enterprises uses a computer to handle its sales invoices.

Lately, business has been so good that it takes an extra three hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing. Data for the two computers are as follows:

Problem 1: Prepare an incremental analysis for the decision to retain or replace equipment.

Current Computer                                                                        New Computer

Original purchase cost            Accumulated depreciation            Estimated operating costs              Useful life

$15,000                                           $ 6,000                                  $25,000 5                                   years

$25,000                                             $ 0                                         $20,000                                    5 years

If sold now, the current computer would have a salvage value of $6,000. If it is used for the remainder of its useful life, the current computer would have zero salvage value. The new computer is expected to have zero salvage value after five years.