Kyrgios Ltd. is currently considering whether to replace a machine with a more technically advanced...
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Accounting
Kyrgios Ltd. is currently considering whether to replace a machine with a more technically advanced model. Summary data on the existing machine and the replacement machine is shown below.
Existing Machine
Original cost $2,200,000; Useful life is 5 years; Current age is 2 years; Current disposal price (in cash now) is $50,000; Terminal disposal price (in 3 yrs) is $0; Annual cash operating costs are $850,000.
Replacement Machine
Original cost $800,000; Useful life is 3 years; Current age is 0 years; Current disposal price (in cash now) is $0; Terminal disposal price (in 3 yrs) is $0; Annual cash operating costs are $620,000.
Assuming Kyrgios Ltd uses the straight line depreciation method and ignoring the effects of tax and the time value of money, what is the difference in the total relevant costs of adopting the two alternative courses of action over the next three years.
Select one:
a. Net advantage of $60,000 if keep machine
b. Net advantage of $690,000 if replace machine
c. Net advantage of $100,000 if replace machine
d. Net advantage of $520,000 if keep machine
e. Net advantage of $740,000 if replace machine
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