1. **State the problem:** We have two machines: an old machine and a replacement machine. We want to analyze their costs and values over their useful lives. 2. **Given data:** - Old Machine: Purchase price = 10000, Useful life = 10 years, Current age = 6 years, Remaining life = 4 years, Accumulated depreciation = 6000, Book value = 4000, Disposal value now = 2500, Disposal value in 4 years = 0, Annual cash operating costs = 5000. - Replacement Machine: Purchase price = 8000, Useful life = 4 years, Current age = 0, Remaining life = 4 years, Accumulated depreciation = 0, Book value = N/A, Disposal value now = N/A, Disposal value in 4 years = 0, Annual cash operating costs = 3000. 3. **Calculate book value of old machine:** Book value = Purchase price - Accumulated depreciation $$4000 = 10000 - 6000$$ 4. **Calculate total cost of keeping old machine for remaining 4 years:** Total cost = Operating costs for 4 years + loss in disposal value Operating costs = $5000 \times 4 = 20000$ Disposal value loss = Disposal value now - Disposal value in 4 years = $2500 - 0 = 2500$ Total cost = $20000 + 2500 = 22500$ 5. **Calculate total cost of replacement machine for 4 years:** Total cost = Purchase price + Operating costs for 4 years + Disposal value loss Operating costs = $3000 \times 4 = 12000$ Disposal value loss = $0$ (given) Total cost = $8000 + 12000 + 0 = 20000$ 6. **Compare costs:** Old machine total cost = 22500 Replacement machine total cost = 20000 7. **Conclusion:** Replacement machine is cheaper by $22500 - 20000 = 2500$ over 4 years. This analysis helps decide whether to keep the old machine or replace it based on total costs over the remaining useful life.