Rory company has a machine with a book value of $75,000 and a remaining five-year useful life. a new machine is available at a cost of $112,500, and rory can also receive $60,000 for trading in its old machine. the new machine will reduce variable manufacturing costs by $13,000 per year over its five-year useful life. calculate the incremental income. (any losses or outflows should be entered with a minus sign.)

It is a good investment, the company should purchase the machine and sale the old one.

Explanation:

We post the purchase cost and the proceeds from the machine sale,

The book value of the machine is irrelevant, we are looking to save cash. The old machine value is a sunk cost. It is a cost already incurred. We don't use it in the calculations.

Then we calculate the saving for five years.

Last, we add the differential analysis column.

Because is gives a positive amount, purchase the new machien would be a good idea.

i think it is sales-oriented, but i am not sure

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