Tesla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management was presented with the following information to assist in their decision:
• The old machine was purchased three years ago for $309,000 and has a current book value using straight-line depreciation of $193,000.
• The old machine incurs operating expenses of $34,000 per year.
• The current disposal value of the old machine is $77,000; if it is kept eleven more years, its remaining value would be $13,000.
• The replacement machine would cost $236,000 and have a useful life of eleven years.
• The replacement machine has an expected salvage value of $67,000 after eleven years.
• The replacement machine would require $10,000 per year in operating expenses