Prisma Industries Ltd. is considering replacing one of its machines with a newer and more...
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Prisma Industries Ltd is considering replacing one of its machines with a newer and more efficient model. The existing machine was purchased twelve years ago, has years of useful life remaining and currently has a book value of $ If replaced, the machine could be sold as scrap for $ Maintenance and operating costs on the machine are $ annually.
The new machine, which would have a useful life of fifteen years, has a purchase price of $ and annual maintenace and operating costs of $ annually. The employees would have to be trained on the new machine at an estimated cost of $ Prisma estimates that due to the increased efficiency, other variable manufacturing costs would be reduced by $ per year. If the new machine is purchased, one employee would have to be laid off, which would save the company an additional $ annually. Given this information, what is the net incremental benefit cost of replacing the machine?
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The question cannot be answered without knowing the remaining useful life of the existing machine
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$
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