The book value of a machine, as shown on the balance sheet, is not relevant in a decision concerning the replacement of that machine by another machine. (Ignore taxes.)

Question

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The book value of a machine is based on its historical cost and accumulated depreciation. It does not represent the current market value or the economic usefulness of the machine. Therefore, it should not be the sole consideration in a decision about whether to replace the machine. Factors such as the expected cash flows, cost of the new machine, and potential salvage value of the old machine need to be considered.

The Book Value of a Machine, as Shown on the Balance