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Prisma Industries Ltd. is considering replacing one of its machines with a newer and more...

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Accounting

Prisma Industries Ltd. is considering replacing one of its machines with a newer and more efficient model. The existing machine was purchased twelve years ago, has 15 years of useful life remaining and currently has a book value of $195,000. If replaced, the machine could be sold as scrap for $5,000. Maintenance and operating costs on the machine are $95,000 annually.
The new machine, which would have a useful life of fifteen years, has a purchase price of $365,000 and annual maintenace and operating costs of $88,000 annually. The employees would have to be trained on the new machine at an estimated cost of $75,000. Prisma estimates that due to the increased efficiency, other variable manufacturing costs would be reduced by $15,000 per year. If the new machine is purchased, one employee would have to be laid off, which would save the company an additional $82,000 annually. Given this information, what is the net incremental benefit (cost) of replacing the machine?
Select answer from the options below
The question cannot be answered without knowing the remaining useful life of the existing machine
($331,000)
($23,000)
$167,000

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