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Please help solve Tommy has been using the same machines to make its name brand...

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Accounting

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Tommy has been using the same machines to make its name brand clothing for the last five years. A cost efficiency consultant has suggested that production costs may be reduced by purchasing more technologically advanced machinery. The old machines cost the company $100,000. The old machines presently have a book value of $60,000 and a market value of $6,000. They are expected to have a five-year remaining life and $1,000 salvage value. The new machines would cost the company $50,000 and have operating expenses of $10,000 a year. The new machines are expected to have a five-year useful life and $6,000 salvage value. The operating expenses associated with the old machines are $20,000 a year.

Should Tommy keep or replace the machine, and how would that decision impact profitability?

Also, State the:

Relevant cost: ______________________________________________________________

Sunk cost: __________________________________________________________________

Opportunity cost: _______________________________________________________________

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