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Should the current machine be replaced

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Reference no: EM132514580

wyla Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 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.

                                      Current Machine                  New Machine

Original purchase cost              $15,000                         $25,000

Accumulated depreciation                  $ 6,000                      ------

Estimated annual operating costs         $24,000                     $20,000

Useful life                                         5 years                       5 years

  • If sold now, the current machine would have a salvage value of 5,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after five years.

Question 1: Should the current machine be replaced?

Question 2: Net income for the five year period will be ? is it higher or lower?

Reference no: EM132514580

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