Reference no: EM132574940

A new company formed in January 2018 purchased a solar machine at a cost of $175,000. The smart board has a useful life of 5 years with no residual value. Fixed and variable costs are $30,000 and $60,000 respectively.

In January 2019, the company was approached by another firm to purchase a modernized presentation equipment for $230,000, which has a life span of 4 years with no residual value. Fixed and variable costs are $12,000 and $16,000 respectively.

Under the old and new solar machine,the selling and administrative expenses are $35,000.

The old and new machine is depreciated using the straight line method, for the period 2018-2023 for the old machine and the period 2019-2023 for the new machine.

The old solar machine can be sold for $30,000.

Question (a) Determine any gain or loss if the old solar machine is replaced.

Question (b) Using incremental analysis, determine if the old solar machine should be replaced.

Question (c) Explain why the company may be reluctant to purchase a new machine, regardless of the results indicated by the incremental analysis in part(b) above.