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3. A company is considering replacing an old piece of machinery, which cost $650,000 and has $350,000 of accumulated depreciation to date, with a new
3. A company is considering replacing an old piece of machinery, which cost $650,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The old machine could be sold for $251,000. The annual variable production costs associated with the old machine are estimated to be $71,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $21,000 per year for eight years. Prepare a differential analysis dated September 13 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation? a
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