Chung Inc. is considering the replacement of a piece of equipment with a newer m
ID: 2453965 • Letter: C
Question
Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected:
Old Equipment New Equipment
Purchase price $225,000 $375,000
Accumulated depreciation 90,000 -0-
Annual operating costs 300,000 240,000
If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. The net advantage (disadvantage) of replacing the old equipment with the new equipment is
A) $60,000
B) $(15,000)
C) $(75,000)
D) $90,000
Explanation / Answer
Old equipment New equipment Difference Purchase price 375000 -375000 Sales value -60000 60000 Annual operating costs (5 years) 1500000 1200000 300000 Total 1500000 1515000 -15000 Option B $(15,000) is correct