Reference no: EM13494728

Johnson 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		$15,040			$24,810
Accumulated depreciation		$6,950			_
Estimated annual operating costs		$24,790			$19,760
Useful life		5 years			5 years

If sold now, the current machine would have a salvage value of $10,260. 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 5 years.

Prepare an incremental analysis.(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Retain Machine		Replace Machine		Net Income Increase (Decrease)
Operating costs		$		$		$
New machine cost
Salvage value (old)
Total		$		$		$

Should the current machine be replaced?

The current machine should be retain edreplaced.