Rocko Inc. has a machine with a book value of $50,000 and a five-year remaining life. A new machine is available at a cost of $85,000 and Rocko can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced

Yes, because income will increase by $23,000.

Explanation:

The computation is shown below:

We know that

New machine cost = $85,000

Received amount = $38,000

So, the extra cost would be

= $85,000 - $38,000

= $47,000

And, the manufacturing cost for the 5 years would be

= $14,000 * 5 years

= $70,000

Based on this above calculations the net gain would be

= $70,000 - $47,000

= $23,000 gain