Kobe Company has a factory machine with a book value of $93,340 and a remaining useful life of 5

years. It can be sold for $25,280. A new machine is available at a cost of $251,790. This machine will
have a 5-year useful life with no salvage value. The new machine will lower annual variable
manufacturing costs from $744,800 to $626,000. Prepare an analysis showing whether the old
machine should be retained or replaced. (Enter negative amounts using either a negative sign
preceding the number e.g. -45 or parentheses e.g. (45).)

Retain
Equipment
Variable manufacturing costs for 5
years

Replace
Equipment

$3724000

Net 5-Year
Income
Increase
(Decrease)

$ 3130000

$ 594000

New machine cost

251790

-251790

Sell old machine

-25280

25280

Total

The old factory machine should be replaced.

$3724000

$3356510

367490