Geiger Company is considering the replacement of equipment used in operations. The following data are available:
Old Equipment New Equipment
- Original cost $210,000 $40,000
- Useful life in years 12 7
- Current age in years 5 0
- Book value $65,000 -
- Disposal value now $30,000 -
- Disposal value in 7 years 0 0
- Annual cash operating costs $10,000 $9,000
Required:
A) Prepare a cost comparison for replacing the old equipment. Use only relevant items and add the items together for the next 7 years.
B) Should the old equipment be replaced?