Mountain Gear Has Been Using the Same Machines to Make

Mountain Gear 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 $250,000. The old machines presently have a book value of $125,000 and a market value of $17,000. They are expected to have a five-year remaining life and zero salvage value. The new machines would cost the company $150,000 and have operating expenses of $17,000 a year. The new machines are expected to have a five-year useful life and no salvage value. The operating expenses associated with the old machines are $35,000 a year. The new machines are expected to increase quality, justifying a price increase and thereby increasing sales revenue by $15,000 a year. Select the true statement.

A) The company will be $32,000 better off over the 5-year period if it replaces the old equipment.
B) The company will be $33,000 better off over the 5-year period if it replaces the old equipment.
C) The company will be $50,000 better off over the 5-year period if it keeps the old equipment.
D) The company will be $17,000 better off over the 5-year period if it replaces the old equipment.

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