Question

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

Answer 1

Answer:

The company should keep their old equipment because if they buy the new equipment their cash flow will decrease by $5,000

Explanation:

If the company keeps the old equipment their costs will be:

$30,000 x 3 years = $90,000

total costs =  $90,000

If the company buys the new equipment their costs will be:

equipment cost = $75,000 - $10,000 = $65,000

$10,000 x 3 years = $30,000

total costs =  $95,000

Answer 2

The Company should not replace the old equipment due to the decrease in net income of the amount of $5,000.

Total decrease in net income

Reduction in costs=(30,000-10,000)×3 years

Reduction in costs= $20,000 x 3 years

Reduction in cost= $60,000.

Total decrease in net income=($75,000) + 10,000 + 60,000

Total decrease in net income= ($5,000)

Based on the above calculation the Company should not replace the old equipment.

Inconclusion the Company should not replace the old equipment due to the decrease in net income of the amount of $5,000.

Learn more about Total decrease in net income here:https://brainly.com/question/10955397