Crone Enterprises uses a word processing 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 |
$21,000 |
|
Accumulated depreciation |
6,000 |
— |
|
Estimated 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 5 years.
Instructions
Should the current machine be replaced? (Ignore the time value of money.)