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.
-The net advantage (disadvantage) of replacing the old equipment with the new equipment is

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. 
-The net advantage (disadvantage) of replacing the old equipment with the new equipment is

Quizplus · Accepted Answer

The net advantage (disadvantage) of replacing the old equipment with the new equipment is $ (15,000). The old equipment has a book value of $135,000 ($225,000 - $90,000) and can be sold for $60,000. The new equipment costs $375,000. The annual operating costs of the new equipment are $240,000, which is $60,000 less than the annual operating costs of the old equipment. The net advantage (disadvantage) of replacing the old equipment with the new equipment is $ (15,000) [($135,000 - $60,000) - $375,000 + ($240,000 x 5)].

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