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Problem 12-4 Last year (2016), Blue Condos installed a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator's speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the company's accountant to provide him with cost data on the company's elevator. This information is presented below. Old Elevator $105,000 New Elevator $160,000 0 0 5 years Purchase price Estimated salvage value Estimated useful life Depreciation method Annual operating costs other than depreciation: 4 years Straight-line Straight-line Variable $35,100 23,800 $11,000 8,000 Fixed Annual revenues are $241,000, and selling and administrative expenses are $29,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2017, Blue Condos will be able to sell it for $24,500. Determine any gain or loss if the old elevator is replaced. Prepare a 4-year summarized income statement for each of the following assumptions: (1) The old elevator is retained. Retain Old Elevator Revenues Less costs: Variable costs Fixed costs Selling & administrative Depreciation Net income (2) The old elevator is replaced. Replace Old Elevator Revenues Less costs: Variable costs Fixed costs Selling & administrative Depreciation Operating income Less: Loss on old elevator Net income Using incremental analysis, determine if the old elevator should be replaced. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Retain Old Elevator Replace Old Elevator Net Income Increase (Decrease) Variable operating costs Fixed operating costs New elevator cost Salvage on old elevator Totals

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