Replacing an asset

1. Four years ago a company purchased a new copy machine. Due to deterioration, soon a new copy machine will be needed. The annual maintenance cost for the existing machine is $1,600 and increasing 100 each year. An identical copy machine can be purchased now to replace the presently owned assets. The presently owned copy machine losses each year $10,000 in resale value, compare the assets with at 10% per year and compute when the presently owed should be replace.

Same model as presently owned

Present value (when new) $75,000

Present value of new copy machine $85,000

Annual cost (old copy machine) 1,100

Annual cost (new copy machine) 1,600 and increasing

Salvage value (both machine) 15,000

Life in years (both machine) 6