Please help me solve this. A current machine was purchased 3 years ago for $150,

Question

Please help me solve this.

A current machine was purchased 3 years ago for $150,000. The book value is currently $90,000. The market value is $75,000. Straight-line depreciation is used. The machine has 5 more years of service remaining with salvage of $10,000 at that time. Operating costs are $20,000 per year. A new piece of equipment can be purchased for $175,000 having a 12-year life with no salvage at that time. The annual operating costs are expected to be $12,000. If the desired ROI is 12%, determine the future annual costs of the existing and the new equipment, $38,904 and $41,300 $40,251 and $41,300 $38,904 and $39,232 $39,232 and $40,251

Explanation / Answer

CALCULATION OF FUTURE ANNUAL COSTS

__________________________________________________________________

                                                        CURRENT MACHINE         NEW EQUIPMENT    

1. Cost of asset                                  $ 90,000                             $ 175,000

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