Hondo Company Has a Machine with a Book Value of $50,000

question 108

Multiple Choice

Hondo Company has a machine with a book value of $50,000 and a five-year remaining life.A new machine is available at a cost of $108,000 and Rocko can also receive $38,000 for trading in the old machine.The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life.Should the machine be replaced?

• A) Yes, because income will increase by $14,000 per year.
• B) Yes, because income will increase by $52,000 immediately.
• C) No, because the company will be $108,000 worse off.
• D) No, because the income will decrease by $14,000 per year.
• E) Hondo will not be better or worse off by replacing the machine.

---

Definitions:

Psychological Disorders

Patterns of behavioral or psychological symptoms that impact multiple areas of life and create distress for the person concerned.

Overwhelming Fear

An intense fear that is so strong it controls or severely impacts one's behavior and decision-making.

Cardiac Arrest

This is a sudden loss of heart function, leading to a lack of blood flow and oxygen to the body's organs; it requires immediate medical attention.

Obsessive-Compulsive Disorder

A mental disorder characterized by recurrent, unwanted thoughts (obsessions) and/or repetitive behaviors (compulsions) that the individual feels driven to perform.