Sala Cois Contemplating the Replacement of an Old Machine with a a New

question 136

Multiple Choice

Sala Co.is contemplating the replacement of an old machine with a new one.The following information has been gathered: $\begin{array}{lrr} & \text { Old Machine } &\text { New Machine } \\\text { Price } & \$ 300,000 & \$ 600,000 \\\text { Accumulated Depreciation } & 90,000 & -0- \\\text { Remaining useful life } & 10 \text { years } & -0- \\\text { Useful life } & -0- & 10 \text { years } \\\text { Annual operating costs } & \$ 240,000 & \$ 180,600\end{array}$ If the old machine is replaced it can be sold for $24000. The net advantage (disadvantage) of replacing the old machine is

• A)$18000
• B)$24000
• C)$(6000)
• D)$(60000)

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Definitions:

Nominal Interest

The interest rate stated on a loan or investment agreement before the adjustment for inflation.

Effective Rate

The effective rate is the actual interest rate on an investment or loan, taking into account the compounding of interest, as opposed to the nominal or stated rate.

Compounding Interval

The frequency at which interest is added to the principal of a deposit or loan, influencing the total interest earned or paid.

Compounded Quarterly

The process of calculating interest on both the initial principal and the accumulated interest over three-month intervals.