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Picard Inc

Price: $1.99


On January 2, 2013, Benson Hospital purchased a $100,000 special radiology scanner
from Picard Inc. The scanner had a useful life of 4 years and was estimated to have no
disposal value at the end of its useful life. The straight-line method of depreciation is used
on this scanner. Annual operating costs with this scanner are $105,000.
Approximately one year later, the hospital is approached by Dyno Technology salesperson,
Meg Ryan, who indicated that purchasing the scanner in 2013 from Picard Inc. was a
mistake. She points out that Dyno has a scanner that will save Benson Hospital $30,000 a
year in operating expenses over its 3-year useful life. She notes that the new scanner will
cost $110,000 and has the same capabilities as the scanner purchased last year. The hospital
agrees that both scanners are of equal quality. The new scanner will have no disposal
value. Ryan agrees to buy the old scanner from Benson Hospital for $40,000.

Instructions
(a) If Benson Hospital sells its old scanner on January 2, 2014, compute the gain or loss
on the sale.
(b) Using incremental analysis, determine if Benson Hospital should purchase the new
scanner on January 2, 2014.

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