Question

Darcy Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Darcy Roofing spent $71,400 refurbishing the lift. It has just determined that another $37,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $156,500. The company estimates that both lifts would have useful lives of 6 years. The new lift is more efficient and thus would reduce operating expenses by about $23,800 per year. Darcy Roofing could also rent out the new lift for about $9,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $23,000 if the new lift is purchased.

Prepare an incremental analysis for the life of the machines showing whether the company should replace the equipment. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Retain
Equipment Replace
Equipment Net Income
Increase (Decrease)
Operating expenses $

Answer 1

Answer: The extension lift should b bought as it incurs a lesser cost during the 6 years period.

Step-by-step explanation:

If lift is retained:

Operating expense = 23800 × 6 = 142800

Repair cost = 37000

Total cost = 142800 + 37000 = 179800

If lift is purchased:

Rental revenue if earned = 9000 × 6 = 54000

New machine cost = 156500

Sale of old machine = 23000

Check explanation for attachment