Tesla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management was presented with the following information to assist in their decision:
A machine purchased three years ago for $ has a current book value using straightline depreciation of $; its operating expenses are $ per year. A replacement machine would cost $ have a useful life of ten years, and would require $ per year in operating expenses. It has an expected salvage value of $ after ten years. The current disposal value of the old machine is $; if it is kept ten more years, its residual value would be $
Required
Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced?
Answer is complete but not entirely correct.
tabletableSeep OldMachinetablePurchaseNew MachineTotal costs,$tableShould the old machinereplacedYes