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Ridley Company Retain or Replace Equipment

Ridley Company has a factory machine with a book value of $83,200 and a remaining useful life of 4 years. A new machine is available at a cost of $207,900. This machine will have a 4-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $616,500 to $430,000.

Prepare an analysis showing whether the old machine should be retained or replaced. (If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)

Retain Equipment Replace Equipment Net 4-Year Income Increase

Variable manufacturing costs

New machine cost


The old factory machine should be replaced or retained?

Solution Preview

We assume that the old machine can be sold at its book value of $83,200. If the company buys the new machine, it is assumed that the company will simultaneously sell the old machine for $83,200. Since the new ...

Solution Summary

Answered in 134 words. An Excel file showing all computations is provided.