Doggy Day Park Inc.currently has a special tank used to provide exercise hydro therapy for the dogs.The current book value of the tank is $25,000 and they could sell it for $12,000 if they wanted to do so.Doggy is evaluating a new tank system that will provide additional therapy capability.The new tank will cost $55,000 and will save $7,500 per year in operating costs.The new tank system is expected to last six years.
Required:
a.Using incremental analysis,should they buy the new tank? Show calculations to support your answer.
b.Will the answer to (a)change if they can only sell the old tank for $5,000? Why or why not?

Question

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The Answer of Doggy Day Park Inc.currently has a special tank used to provide exercise hydro therapy for the dogs.The current book value of the tank is $25,000 and they could sell it for $12,000 if they wanted to do so.Doggy is evaluating a new tank system that will provide additional therapy capability.The new tank will cost $55,000 and will save $7,500 per year in operating costs.The new tank system is expected to last six years.
Required:
a.Using incremental analysis,should they buy the new tank? Show calculations to support your answer.
b.Will the answer to (a)change if they can only sell the old tank for $5,000? Why or why not?