Le Tournant Hotel and Resort is contemplating the replacement of one of its washing machines with a newer and more effic

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Le Tournant Hotel and Resort is contemplating the replacement of
one of its washing machines with a newer and more efficient one.
The old machine has a book value of $800,000 and a remaining useful
life of 3years. The hotel does not expect to realize any return
from scrapping the old machine in 3 years, but it can sell it now
to another hotel in the industry for $300,000. The old machine is
being depreciated toward a zero salvage value, or by $160,000 per
year, using the straight line method. The new machine has a
purchase price higher than old machine and estimated useful life
and MACRS class life of 3 years, and an estimated salvage value of
$200,000 with MACRS recovery allowance percentage as (32%, 39%and
19%). It is expected to economize on electric power usage, labor,
and repair costs. In total, an annual savings of $350,000 will be
realized if the new machine is installed. The company’s marginal
tax rate is 35% and it has a 12% cost of capital. So you cannot
calculate depreciation expenses for a new mashine.
a.
False
b.
True