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 $67,800 refurbishing the lift. It has just determined that another $32,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $136,000. 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 $22,600 per year. Darcy Roofing could also rent out the new lift for about $8,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $20,000 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. Retain Equipment Replace Equipment Net Income Increase (Decrease) Operating expenses $ $ Repair costs Rental revenue New machine cost Sale of old machine Total cost

Answer 1

Particulars	Retain Equipment	Replace Equipment	Net Income (Increase/Decrease)
Operating Expenses	-	(22,600.00)	22,600.00
Repair cost	32,000.00		32,000.00
Rental Revenue		(8,000.00)	8,000.00
New Machine Cost		136,000.00	(136,000.00)
Sale of Old Machine		(20,000.00)	20,000.00
Total Cost	32,000.00	85,400.00	(53,400.00)

Refurbish Expenses spent is a sunk cost and is not considered