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## At the beginning of last year (2019), Richter Condos installed a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator’s speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the company’s accountant to provide him with cost data on the company’s elevator. This information is presented below.     Old Elevator   New Elevator   Purchase price   \$96,000     \$160,000     Estimated salvage value   0     0     Estimated useful life   5 years     4 years     Depreciation method   Straight-line     Straight-line     Annual operating costs                 other than depreciation:                  Variable   \$34,800     \$10,000        Fixed   22,800     8,800     Annual revenues are \$241,000, and selling and administrative expenses are \$29,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2020, Richter Condos will be able to sell it for \$25,600. Using incremental analysis, determine if the old elevator should be replaced. (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. -15 or parentheses e.g. (15).)     Retain Old Elevator   Replace Old Elevator   Net Income Increase (Decrease)   Variable operating costs   \$     \$     \$     Fixed operating costs               New elevator cost               Salvage on old elevator                  Totals   \$     \$     \$

At the beginning of last year (2019), Richter Condos installed a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator’s speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the company’s accountant to provide him with cost data on the company’s elevator. This information is presented below.

 Old Elevator New Elevator Purchase price \$96,000 \$160,000 Estimated salvage value 0 0 Estimated useful life 5 years 4 years Depreciation method Straight-line Straight-line Annual operating costs other than depreciation: Variable \$34,800 \$10,000 Fixed 22,800 8,800

Annual revenues are \$241,000, and selling and administrative expenses are \$29,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2020, Richter Condos will be able to sell it for \$25,600.

Using incremental analysis, determine if the old elevator should be replaced. (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. -15 or parentheses e.g. (15).)

 RetainOld Elevator ReplaceOld Elevator Net IncomeIncrease(Decrease) Variable operating costs \$ \$ \$ Fixed operating costs New elevator cost Salvage on old elevator Totals \$ \$ \$

The old elevator

shouldshould not

be replaced.

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