Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $$598,900$ and has $$348,000$ of accumulated depreciation to date, with a new machine that has a purchase price of $$486,500.$ The old machine could be sold for $$63,000.$ The annual variable production costs associated with the old machine are estimated to be $$155,000$ per year for eight years. The annual variable production costs for the new machine are estimated to be $$100,400$ per year for eight years.

a$.1$ Prepare a differential analysis dated May $29$ to determine whether to continue with $($Alternative $1)$ or replace $($Alternative $2)$ the old machine. If an amount is zero, enter $"0".$ If required, use a minus sign to indicate a loss.

Differential Analysis

Continue with Old Machine $($Alt$.1)$ or Replace Old Machine $($Alt$.2)$

Revenues:

Proceeds from sale of old machine

Costs:

Purchase price

Variable productions costs $(8$ years$)$

Profit $($Loss$)$

$($Alternative $1)($Alternative $2)($Alternative $2)$

$

$

$

a$.2$ Determine whether to continue with $($Alternative $1)$ or replace $($Alternative $2)$ the old machine.

b$.$ What is the sunk cost in this situation?