Smith Industries Is Considering Replacing a Machine That Is Presently

question 15

Multiple Choice

Smith Industries is considering replacing a machine that is presently used in its production process.The following information is available:
$$\begin{array} { | l | r | r | } \hline& { \text { Old machine } } & { \begin{array} { c } \text { Replacement } \\\text { machine } \end{array} } \\\hline \text { Original cost } & \$ 45000 & \$ 35000 \\\hline \text { Remaining useful life in years } & 5 & 5 \\\hline \text { Current age in years } & 5 & 0\\\hline \text { Book value } & \$ 25000 & \\\hline \text { Current disposal value in cash } & \$ 8000 & \\\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0\\ \hline \text { Annual cash operating costs } & \$ 7000 &\$ 4000 \\\hline\end{array}$$
Which of the information provided in the table is irrelevant to the replacement decision?

• A) Annual operating costs
• B) The current disposal value of the old machine
• C) The price of the new machine
• D) The original cost of the old machine

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Definitions:

Additional Work

Tasks or services that are added to the original scope of a contract or agreement, often requiring a modification to terms and additional payment.

Preexisting Duty

An obligation that one party is already legally required to perform, which cannot serve as consideration for a new contract.

Highlights

Key points or significant details that stand out within a larger context.

Preexisting Duty

An obligation that a party is already legally bound to perform, which cannot serve as consideration for a new contract.