A Replacement Project Involves the Purchase of a New Machine

question 196

Essay

A replacement project involves the purchase of a new machine for $100,000 that will be depreciated over 10 years.  The old machine was purchased six years ago for $60,000 and was depreciated using a 15 year life.  Both machines use straight line depreciation, including the half-year convention.  What will the incremental depreciation expense be in the first year of the project if the old machine is sold and the new machine is purchased?  What will it be in the second year of the project?

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Definitions:

Functional Group

An atom or group of atoms within a molecule that is responsible for the characteristic chemical reactions of the molecule.

Ketone

an organic compound characterized by a carbonyl group linked to two alkyl or aryl groups.

Ether

A class of organic compounds characterized by an oxygen atom connected to two alkyl or aryl groups, used as solvents and in chemical synthesis.

Tertiary Amine

An amine where the nitrogen atom is connected to three alkyl or aryl groups.