A company purchased manufacturing equipment 5 years ago for $50,000. Accumulated depreciation is currently $45,000 and the remaining useful life is 3 years. The equipment incurs annual operating costs of $30,000. The company is considering replacing the equipment. The new equipment will cost $75,000, have a useful life of 3 years, and is more efficient and, therefore, only costs $10,000 to operate each year. The vendor is willing to accept the old equipment with a trade-in allowance of $10,000. The company should: Multiple choice question. keep the old equipment because the total net increase in income will be $5,000 replace the old equipment because the total net increase in income will be $5,000 keep the old equipment because the total net decrease in income will be $5,000 if they purchase the new equipment replace the old equipment because the total net decrease in income will be $5,000
A company purchased manufacturing equipment 5 years ago for $50,000. Accumulated depreciation is currently $45,000 and the remaining useful life is 3 years. The equipment incurs annual operating costs of $30,000. The company is considering replacing the equipment. The new equipment will cost $75,000, have a useful life of 3 years, and is more efficient and, therefore, only costs $10,000 to operate each year. The vendor is willing to accept the old equipment with a trade-in allowance of $10,000. The company should: Multiple choice question. keep the old equipment because the total net increase in income will be $5,000 replace the old equipment because the total net increase in income will be $5,000 keep the old equipment because the total net decrease in income will be $5,000 if they purchase the new equipment replace the old equipment because the total net decrease in income will be $5,000
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 4P: Although the Chen Company’s milling machine is old, it is still in relatively good working order and...
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:A company purchased manufacturing equipment 5 years ago for $50,000. Accumulated depreciation is currently $45,000 and the remaining useful life is 3 years. The equipment incurs annual operating costs of $30,000.
The company is considering replacing the equipment. The new equipment will cost $75,000, have a useful life of 3 years, and is more efficient and, therefore, only costs $10,000 to operate each year. The vendor is willing
to accept the old equipment with a trade-in allowance of $10,000. The company should:
Multiple choice question.
keep the old equipment because the total net increase in income will be $5,000
replace the old equipment because the total net increase in income will be $5,000
keep the old equipment because the total net decrease in income will be $5,000 if they purchase the new equipment
replace the old equipment because the total net decrease in income will be $5,000
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