Calculate the total costs in keeping the old machine

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Reference no: EM133861069

Question

Tesla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management was presented with the following information to assist in their decision:

The old machine was purchased three years ago for $720,000 and has a current book value using straight-line depreciation of $400,000.
The old machine incurs operating expenses of $60,000 per year.
The current disposal value of the old machine is $170,000; if it is kept nine more years, its remaining value would be $20,000.
The replacement machine would cost $480,000 and have a useful life of nine years.
The replacement machine has an expected salvage value of $130,000 after nine years.
The replacement machine would require $26,000 per year in operating expenses.

Required

Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced?

Reference no: EM133861069

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