Janko Wellspring Inc

question 48

Multiple Choice

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)Yes,because income will increase by $3,000 in total.
• B)Yes,because income will increase by $3,000 per year.
• C)No,because the company will be $3,000 worse off in total.
• D)No,because income will decrease by $10,000 per year.
• E)No,Janko will record a loss of $16,000 if they replace the pump.

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Definitions:

Scheduled Debt

A fixed plan for the repayment of borrowed money, including principal and interest, over a specified period.

Compounded Quarterly

Interest calculation method where the interest is added to the principal four times a year, leading to more interest earned or paid than if it were compounded less frequently.

Interest

A financial expense for accessing borrowed capital, customarily indicated by an annual rate in percentage.

Investment

The act of allocating funds into ventures with the intention of gaining financial returns or tangible outcomes.