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Accio Company is evaluating a proposal to purchase a new machine that would cost $120,000...

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Accounting

Accio Company is evaluating a proposal to purchase a new machine that would cost $120,000 and

Have a salvage value of $12,000 in 5 years. The new machine would provide savings of $15,000 in

Operating costs when compared to that of the existing machine (which has operating costs of $55,000).

If Accio purchases the new machine, it will sell the old one for its current salvage value of $30,000. If Accio does not purchase the new machine, it will dispose of the old machine in 5 years at an estimated value of $2,000. The old machines present book value is $50,000. The old machine will require repairs estimated at $40,000 in one year.

Accios cost of capital is 12%. Additional information for a 12% time value of money:

Present value of $1 year 1 0.89286

Present value of $1 year 5 0.56743

Present value of an annuity of $1, 5 periods 3.60478

Required:

Use the total cost approach to evaluate the alternatives of keeping the old machine and purchasing the new machine, Indicate which alternative is preferred.

Thank you for your help:)

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