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Murl Plastics Inc. purchased a new machine one year ago at a cost of $30,000. Although the machine operates well, the president of Murl Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine would slash annual operating costs by two-thirds, as shown in the comparative data below:

	Present Machine			Proposed New Machine
Purchase cost new	$	30,000		$	45,000
Estimated useful life new		6	years		5	years
Annual operating costs	$	21,000		$	7,000
Annual straight-line depreciation		5,000			9,000
Remaining book value		25,000
Salvage value now		5,000
Salvage value in five years		0			0
In trying to decide whether to purchase the new machine, the president has prepared the following analysis: Book value of the old machine $ 25,000 Less: Salvage value 5,000 Net loss from disposal $ 20,000 Even though the new machine looks good, said the president, we cant get rid of that old machine if it means taking a huge loss on it. Well have to use the old machine for at least a few more years. Sales are expected to be $100,000 per year, and selling and administrative expenses are expected to be $63,000 per year, regardless of which machine is used. Required: 1. Prepare a summary income statement covering the next five years, assuming the following: a. The new machine is not purchased. b. The new machine is purchased. (Leave no cells blank - be certain to enter "0" wherever required.) 5 Years Summary Keep Old Machine Buy New Machine Difference Total expenses 2. Compute the net advantage of purchasing the new product using relevant costs. of purchasing the new machine

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