Final answer:
RW Engineering should replace the old machine with the new one as the new machine will result in $10,000 in savings over the next four years ($410,000 for the new machine vs. $420,000 for the old machine).
Step-by-step explanation:
RW Engineering is faced with a decision on whether to replace a machine with four years remaining useful life. Currently, the machine incurs $62,000 in fixed and $43,000 in variable costs yearly. A potential replacement machine, which costs $102,000 and has a similar four-year useful life, would incur $49,000 fixed and $28,000 variable costs each year. Given that the old machine has no sale or scrap value, RW Engineering must analyze the costs associated with keeping the current machine versus purchasing the new machine.
To determine the best financial decision, it's necessary to compare the total costs for the remaining four-year life of the current machine with those of the new machine. For the old machine, the total cost over four years would be ($62,000 + $43,000) * 4 = $420,000. The new machine's total cost would include both the purchase price and the operating costs over four years thus, $102,000 + ($49,000 + $28,000) * 4 = $410,000. comparing the two totals, RW Engineering would save $10,000 over the next four years if they purchase the new machine. Therefore, assuming no other factors such as downtime, financing costs, or intangible benefits are involved, it would be financially beneficial for RW Engineering to purchase the new machine as it offers lower overall costs.