Captiva Company is considering purchasing new equipment or overhauling its existing equipment. The manager has gathered the following information:

A) Identify the sunk costs associated with this decision.

B) Compute the increase or decrease in total income over the five-year period if the company chooses to buy the new equipment.

C) Compute the increase or decrease in total income over the five-year period if the company chooses to overhaul its existing machinery.

D) What is your recommendation for this decision?

$25,000 20,000 2,500 750 0 Current Machinery Original cost Accumulated depreciation Annual operating costs Current market value Salvage value at the end of five years Cost of Overhauling Machinery: Cost of overhaul Annual operating costs after overhauling Salvage value at the end of five years New Machinery Cost Annual operating costs Salvage value at end of five years $ 6,000 1,000 0 $28,000 500 0