Major Nelson Company Is Considering Replacing a Machine That Is

question 11

Multiple Choice

Major Nelson Company is considering replacing a machine that is presently used in the production of its product. The following data are available: $\begin{array}{lll}&& \text { Replacement } \\&\text { Old Machine } & \text { Machine }\\\text { Original cost } & \$ 57,000 & \$ 35,000 \\\text { Useful life in years } & 17 & 5 \\\text { Current age in years } & 12 & 0 \\\text { Book value } & \$ 39,000 & - \\\text { Disposal value now } & \$ 8,000 & - \\\text { Disposal value in 5 years } & 0 & 0 \\\text { Annual cash operating } & \$ 7,000 & \$ 4,000\\\text {costs}\end{array}$ The difference in cost between keeping the old machine and replacing the old machine, ignoring income taxes, is:

• A) $22,000 in favor of replacing the old machine
• B) $12,000 in favor of keeping the old machine
• C) $22,000 in favor of keeping the old machine
• D) $37,000 in favor of replacing the old machine