Johnson Enterprises uses a 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.
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Current Machine |
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New Machine |
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Original purchase cost |
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$15,040 |
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$24,810 |
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Accumulated depreciation |
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$6,950 |
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_ |
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Estimated annual operating costs |
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$24,790 |
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$19,760 |
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Useful life |
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5 years |
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5 years |
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If sold now, the current machine would have a salvage value of $10,260. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years.
Prepare an incremental analysis.(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
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Retain Machine |
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Replace Machine |
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Net Income Increase (Decrease) |
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Operating costs |
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$![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
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$![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
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$![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
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New machine cost |
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![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
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![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
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![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
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Salvage value (old) |
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![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
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![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
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![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
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Total |
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$![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
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$![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
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$![](https://edugen.wileyplus.com/edugen/art2/common/pixel.gif) |
Should the current machine be replaced?
The current machine should be retain edreplaced.