Required: GH Company is trying to decide whether to replace a current piece
Required: GH Company is trying to decide whether to replace a current piece of machinery with a
new machine. Using the below data, determine the relevant costs of the old machine and the new machine. Should GH Company purchase the new machine?
Old Machine New machine
Original cost 100,000
Accumulated depreciation (50,000)
——————–
Book value 50,000
Market value (now) 25,000 30,000
Salvage value (in 5 years) 5,000 8,000
Annual depreciation expense 11,000
Operating expenses
Per year 9,000 4,500
Times number of years 4 4
Total operating expenses 36,000 18,000
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