Marine Industrial Coatings, Inc. is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow:
-If Marine Industrial Coatings replaces the existing computer system with the new one,over the next 5 years operating income will:
A)increase by $2,500.
B)increase by $17,500.
C)decrease by $10,000.
D)increase by $5,000.

Question

Marine Industrial Coatings, Inc. is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow: 
-If Marine Industrial Coatings replaces the existing computer system with the new one,over the next 5 years operating income will:
A)increase by $2,500. 
B)increase by $17,500. 
C)decrease by $10,000. 
D)increase by $5,000.

Quizplus · Accepted Answer

A)Operating costs of new computer system ($2,000 × 5 years)- operating costs of existing system ($3,500 × 5 years)= $7,500 less in operating costs. However, the new machine will have $1,000 more in depreciation expense each year for 5 years, which results in a $2,500 increase in operating income.