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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Definitions:

Substantive outcomes

The tangible results or consequences of an action or decision, often measured in terms of gains or losses.

Competitive

A situation or environment where entities vie against each other to achieve a goal or secure an advantage.

Win-lose strategy

A competitive approach in negotiations where one party's gain is perceived as the other's loss.

Accommodation

The act of adjusting or adapting one's actions, decisions, or opinions to accommodate or meet the needs of others.