Question

Jb lumber corporation is downsizing operations and has to decide which of its large saws should be sold. jb currently has four saws but only needs to keep three. all four saws have a remaining useful life of 3 years and a salvage value of zero at the end of those 3 years. also, all four saws have equal annual operating costs and output efficiency. information related to the four saws is provided below:

Answer 1

In order to maximize profits for the next three years, which machine would be most beneficial for JB to sell?

• saw 3

Step-by-step explanation:

We are told that all 4 saws have the same operation costs and output efficiency, and that they all will have $0 salvage value in three years. The only difference between them is the current book and salvage values:

book value salvage value

saw 1 $50,000 $35,000

saw 2 $25,000 $25,000

saw 3 $48,000 $40,000

saw 4 $22,000 $20,000

Saw 3's salvage value is higher $40,000, and if the company sells it now it will only need to recognize an $8,000 gain. If they sell saw 1, the salvage value will be $35,000 and the recognized gain will be $15,000.