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 nine years, and would
require $ per year in operating expenses. It has an expected salvage value of $ after nine years. The current disposal
value of the old machine is $; if it is kept nine 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?
