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Compute the differential effect on income for new machine

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Question - Starling Co. is considering disposing of a machine with a book value of $21,200 and estimated remaining life of five years. The old machine can be sold for $5,300. A new high-speed machine can be purchased at a cost of 71,200. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $23,000 to $20,700 if the new machine is purchased. The differential effect on income for the new machine for the entire five years is

a. increase of $54,400

b. decrease of $54,400

c. decrease of $70,720

d. increase of $70,720

Reference no: EM132172088

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