Dragoo Building Inc.has a crane with a book value of $240,000 and a four-year remaining life.A new crane is available at a cost of $615,000.Dragoo can also receive $48,000 for trading in the old pump.The new crane will reduce variable costs by $145,000 per year over its four-year life.The total impact to Dragoo over the crane's four-year life is:
A)Increase of $13,000.
B)Increase of $23,000.
C)Decrease of $13,000.
D)Decrease of $615,000.
E)Decrease of $48,000.

Question

Quizplus · Accepted Answer

The total impact is calculated as follows: Savings from reduced costs over four years ($145,000 * 4 = $580,000) minus the net cost of the new crane ($615,000 - $48,000 = $567,000). This results in a net increase of $13,000 ($580,000 - $567,000 = $13,000).