B Lumber Corporation is downsizing operations and has to decide which of its large saws should be sold. JB currently has four saws but only needs to keep three. All four saws have a remaining useful life of 3 years and will all have a salvage value of zero at the end of those 3 years. Also, all four saws have equal annual operating costs and output efficiency. Information related to the four saws is provided below:
Current book value in saw 1 is $50,000, saw 2 is $25,000, saw 3 is $48,000 and saw 4 is $22,000. Current salvage value in saw 1 is $35,000, saw 2 is $25,000, saw 3 is $40,000 and saw 4 is $20,000.
In order to maximize profits for the next three years, which machine would be most beneficial for JB to sell?
a. 1
b. 2
Selected: c. 3 This answer is correct.
d. 4
Correct! The salvage value is all that is relevant and saw 3 has the highest salvage value so that is what would maximize profits.