Asked by
Capri Callis
on Dec 17, 2024
Verified
Nighthawk Inc. is considering disposing of an old machine with a book value of $22,500 and an estimated remaining life of three years. The old machine can be sold for $6,250. A new machine with a purchase price of $68,750 is being considered a replacement. It will have a useful life of three years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $43,750 to $20,000 if the new machine is purchased. The three-year differential effect on profit from replacing the machine is a(n)
A) $8,750 increase
B) $31,250 decrease
C) $8,750 decrease
D) $2,925 decrease
Differential Effect
The financial impact of choosing one option over another in decision-making processes.
Residual Value
The estimated value that an asset will have at the end of its useful life.
Book Value
The value of an asset as recorded on the balance sheet, calculated as the cost of the asset minus accumulated depreciation.
- Evaluate the economic advantages of maintaining versus disposing of machinery, considering a range of costs and revenues.
Verified Answer
MC
Learning Objectives
- Evaluate the economic advantages of maintaining versus disposing of machinery, considering a range of costs and revenues.