twyla enterprises uses a computer to handle its sales invoices lately business has b 501322

Twyla Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing.

Current Machine New Machine

Original purchase cost $15,000 $25,000

Accumulated depreciation 6,000

Estimated annual operating costs $24,000 $18,000

Useful life 5 years 5 years

If sold now, the current machine would have a salvage value of $5,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after five years.

Instructions:

Should the current machine be replaced?

Make incremental analysis concerning elimination of division.