Please help me with the Required homework based on the information below. Requir
ID: 2348536 • Letter: P
Question
Please help me with the Required homework based on the information below.Required:
-Ignoring the time value of money should Eastvaco keep the old machine or purchase the new one?
-Review the concept of relevant cost. You will need to apply the concept of relevant cost to this problem.
-Prepare an income statement (combine three years into one combined income statement) showing which alternative would be best. Start the income statement with next year. Do not consider any costs this year since the plant manager is concerned about his bonus for the next three years.
One of Eastvaco
Explanation / Answer
A. Go for the new one. B. Savings in cash cost per year = 40000-10000 = 30000 Total Savings = 30000*3 = 90000 Cash Outflow for the new machine = 135000-95000 = 40000 Effective Savings = 90000-40000 = 50000 C. Income Statement Revenue 1000000 Operatings Cost 880000 Cash Costs 10000 Depreciation 45000 Income 65000