Trail Power has been using the same machines to make

Trail Power has been using the same machines to make its name brand clothing for the last 5 years. A cost efficiency consultant has suggested that production costs may be reduced by purchasing more technologically advanced machinery. The old machines cost the company $440,000. The old machines presently have a book value of $144,000 and a market value of $36,000. They are expected to have a 5 year remaining life and zero salvage value. The new machines would cost the company $340,000 and have operating expenses of $18,000 a year. The new machines are expected to have a 5 year useful life and no salvage value. The operating expenses associated with the old machines are $54,000 a year. The new machines are expected to increase quality, justifying a price increase, and thereby increasing sales revenue by $34,000 a year.

Select the true statement.

a) The company will be $88,000 better off over the 5 year period if it keeps the old equipment.

b) The company will be $36,000 better off over the 5 year period if it replaces the old equipment.

c) The company will be $52,000 better off over the 5 year period if it keeps the old equipment.

d) The company will be $46,000 better off over the 5 year period if it replaces the old equipment.