Rocko Inchas a Machine with a Book Value of $50,000 and and a Five-Year

question 54

Multiple Choice

Rocko Inc.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 $85,000 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 $23,000 in total.
• C)No,because the company will be $23,000 worse off in total.
• D)No,because the income will decrease by $14,000 per year.
• E)Rocko will be not be better or worse off by replacing the machine.

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