Chung Inc.is considering the replacement of a piece of equipment with a newer model.The following data has been collected: $\begin{array}{lrr}&\text { Old Equipment }&\text { New Equipment }\
\text { Purchase price } & \$ 225,000 & \$ 375,000 \
\text { Accumulated depreciation } & 90,000 & -0- \
\text { Annual operating costs } & 300,000 & 240,000
\end{array}$ If the old equipment is replaced now, it can be sold for $60,000.Both the old equipment's remaining useful life and the new equipment's useful life is 5 years.
- What is the net cost of the new equipment?

Question

Chung Inc.is considering the replacement of a piece of equipment with a newer model.The following data has been collected: $\begin{array}{lrr}&\text { Old Equipment }&\text { New Equipment }\
\text { Purchase price } & \$ 225,000 & \$ 375,000 \
\text { Accumulated depreciation } & 90,000 & -0- \
\text { Annual operating costs } & 300,000 & 240,000
\end{array}$ If the old equipment is replaced now, it can be sold for $60,000.Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. 
- What is the net cost of the new equipment?

Quizplus · Accepted Answer

The net cost of the new equipment is calculated by taking the purchase price of the new equipment ($375,000) and subtracting the sale price of the old equipment ($60,000), resulting in $315,000.

Chung Incis Considering the Replacement of a Piece of Equipment with with a Newer