A commercial oven with a book value of $67,000 has an estimated remaining 5 year life. A proposal is offered to sell the oven for $8,500 and replace it with a new oven costing $110,000. The new machine has a 5-year life with no residual value. The new machine would reduce annual maintenance costs by $23,000. Provide a differential analysis on the proposal to replace the commercial oven. Annual maintenance cost reduction $ Number of years applicable Total differential decrease in cost $ Proceeds from sale of equipment $ Cost of new equipment Net differential decrease in cost from replacing equipment

Question

Business

Angie Landry

25 February, 22:49

A commercial oven with a book value of $67,000 has an estimated remaining 5 year life. A proposal is offered to sell the oven for $8,500 and replace it with a new oven costing $110,000. The new machine has a 5-year life with no residual value. The new machine would reduce annual maintenance costs by $23,000. Provide a differential analysis on the proposal to replace the commercial oven. Annual maintenance cost reduction $ Number of years applicable Total differential decrease in cost $ Proceeds from sale of equipment $ Cost of new equipment Net differential decrease in cost from replacing equipment

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Answers (1)

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Lilia Richard · Answer 1

It should replace the equipment

Explanation:

continue replace Differential

Proceeds from sale - 8,500 8,500

Cost

purchase - - 110,000 - 110,000

cost savings (5 years) 115,000 115,000

Total cost - 5,000 5,000

Net - 13,500 13,500