Creekside Products Inc. is considering replacing an old piece of machinery, which cost $315,000 and has $130,000 of accumulated depreciation to date, with a new machine that costs $275,000. The old machine could be sold for $140,000. The annual variable production costs associated with the old machine are estimated to be $30,000 for eight years. The annual variable production costs for the new machine are estimated to be $9,000 for eight years.
a. Determine the total and annualized differential income or loss anticipated from replacing the old machine.
b. What is the sunk cost in this situation?