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 $78,600 refurbishing the lift. It has just determined that another $47,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $200,500. 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 $26,200 per year. Darcy Roofing could also rent out the new lift for about $12,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $29,500 if the new lift is purchased.

Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

	Retain Equipment	Replace Equipment	Net Income Increase (Decrease)
Operating expenses	$      157,200		$         157,200
Repair costs	$        47,000		$           47,000
Rental revenue		$          (72,000)	$           72,000
New machine cost		$         200,500	$       (200,500)
Sale of old machine		$          (29,500)	$           29,500
Total cost	$      204,200	$           99,000	$        105,200