Reference no: EM132704617

Problem 1: ABC corporation brought a vertical boring machine ten years ago for $90,000 with an expected life of 20 years. The new management anticipated now that the machine will serve well for another 6 years only and purchase a new machine at $120,000 with an expected life of 16 years. The old machine is depreciated as anticipated and can be sold now at $60,000. Operating cost of the old machine is $1,000 and the new machine is $500 per year. Salvage value is 10% of the initial value for both engines regardless of length of time they are used. If money is worth 10% to the company, should the old machine be replaced or not and how much is the difference of the annual cost for both alternative.