Answer: Yes, because income will increase by $23,000.
Explanation:
Since the new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life, the savings for the five years will be:
= $14000 × 5
= $70000
The extra cost needed will be:
= $85000 - $38000
= $47000
Based on the above calculation, the net gain will be:
= $70000 - $47000
= $23000.
Therefore, the machine should be replaced because income will increase by $23,000.
