Keep
Buy new machine
Years
1–4
Four
years
together
Year 1
Years
2–4
Four years
together
Sales Costs (excluding disposal
Other operating costs
Depreciation
Operating costs of machine
Total costs (excluding disposal) Loss on disposal Book value (cost)
Proceeds revenue)
Loss on disposal Total costs Operating income
€150,000 110,000 5,000 15,000 130,000
–
–
–
130,000
€20,000
€600,000 440,000 20,000 60,000 20,000
–
–
–
520,000
€80,000
€150,000 110,000 6,000 9,000 125,000 20,000
(8,000)
12,000 137,000
€13,000
€150,000 110,000 6,000 9,000 125,000
–
–
–
125,000
€25,000
€600,000 440,000 24,000 36,000 500,000 20,000*
(8,000)
12,000 512,000
€88,000
* As in requirement (a, the €20,000 book value maybe omitted from the comparison without changing the €8,000 difference. This adjustment would mean excluding the depreciation item of €5,000 per year (a cumulative effect of
€20,000) under the keep alternative and excluding the book value item of €20,000 in the loss on disposal calculation under the buy alternative.
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