Leopal Company is considering replacing a freight elevator. The current freight elevator has a book value of $37,500 and a remaining useful life of four years, at which time its salvage value will be zero. The current market value of the freight elevator is $5,000. Variable operating costs per year are $201,600 per year. Leopal has identified the following two possible replacement options. Prepare an analysis of the alternatives and whether either option should be used to replace the current elevator.?Option AOption BCost$124,600$140,200Variable operating costs per year$177,000$163,600
What will be an ideal response?
| Feedback: Cost for option A | $(124,600) |
| Market value of old elevator | 5,000 |
| Reduction in variable operating costs* | 98,400 |
| Total decrease in net income | $(21,200) |
* ($201,600 - $177,000) * 4 = $98,400
| Feedback: Cost for option B | $(140,200) |
| Market value of old elevator | 5,000 |
| Reduction in variable operating costs* | 152,000 |
| Total increase in net income | $ 16,800 |
* ($201,600 - $163,600) * 4 = $152,000
Purchase option B as this will increase net income $16,800 over the life of the elevator.
You might also like to view...
An ANOVA technique in which there is only one factor is called ________
A) one-way analysis of variance B) two-way analysis of variance C) parallel analysis of variance D) concurrent analysis of variance E) unitary analysis of variance
What is standard typeset spacing after a period?
a. one space b. two spaces c. .2 inches d. .25 inches
In the context of evaluation and adoption of innovations, ____________ refers to the benefits of adopting new technology compared to the costs
a. relative advantage b. complexity c. compatibility d. trialability e. observability
Region Construction Company has a right to drive its trucks across Staple Business, Inc.'s property, which is adjacent to Region's office. This right is
A. a leasehold estate. B. a license. C. an easement. D. a profit.