Reference no: EM132590907

Question 1: Granfield Company has a piece of manufacturing equipment with a book value of $42,500 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $22,500. Granfield can purchase a new machine for $125,000 and receive $22,500 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $19,500 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

Multiple Choice

Option 1: $24,500 increase

Option 2: $78,000 decrease

Option 3: $20,000 decrease

Option 4: $53,750 increase

Option 5: $24,500 decrease