Salem Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: $\begin{array}{lrr}&\text { Old Machine}&\text { New Machine }\
\text { Price } & \$ 390,000 & \$ 530,000 \
\text { Accumulated Depreciation } & 170,000 & -0 \text { - } \
\text { Remaining useful life } & 6 \text { years } & -0 \text { - } \
\text { Useful life } & -0- & 10 \text { years } \
\text { Annual operating costs } & \$ 167,000 & \$ 151.500
\end{array}$ If the old machine is replaced it can be sold for $120000. Which of the following amounts is relevant to the replacement decision?
A) $170000
B) $390000
C) $151500
D) $0

Question

Quizplus · Accepted Answer

The annual operating costs of the new machine ($151,500) are relevant to the decision because they directly impact the company's future cash flows by reducing operating costs compared to the old machine.

Salem Co Is Contemplating the Replacement of an Old Machine with with a New