Janko Wellspring Inc. has a pump with a book value of $24,000 and a four-year remaining life. A new, more efficient pump, is available at a cost of $45,000. Janko can also receive $8,000 for trading in the old pump. The new pump will reduce variable costs by $10,000 per year over its four-year life. Should the pump be replaced?
A. No, because the company will be $3,000 worse off in total.
B. Yes, because income will increase by $3,000 per year.
C. No, because income will decrease by $10,000 per year.
D. No, Janko will record a loss of $16,000 if they replace the pump.
E. Yes, because income will increase by $3,000 in total.
Answer: E
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