What are the relevant factors in the decision

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Question - Sanchez uses straight-line depreciation on all equipment. Annual depreciation expense for the old machine is $180,000 and will be $270,000 on the new machine if it is acquired. For simplicity, ignore income taxes and the time value of money.

1. Assume that Smith's priority is to receive the promotion and she makes the equipment-replacement decision based on the next one year's accrual-based net operating income. Which alternative would she choose? Show your calculations.

2. What are the relevant factors in the decision? Which alternative is in the best interest of the company over the next 2 years? Show your calculations.

3. At what cost would Smith be willing to purchase the new equipment? Explain.

Reference no: EM132939353

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