Replace Equipment

A machine with a book value of $$247,800$ has an estimated remaining life of $6$ years. A proposal is offered to sell the old machine for $$214,000$ and replace it with a new machine at a cost of $$281,300.$ The new machine has a $6-$year life with no residual value. The new machine would reduce annual direct labor costs from $$50,000$ to $$40,000.$

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

Differential Analysis

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

June $2$

$\backslash$table$[[$Line Item Description,$\backslash$table$[[$Continue$],[$with Old$],[$Machine$],[($Alternative $1)]],\backslash$table$[[$Replace$],[$Old$],[$Machine$],[$Alternative $2]],\backslash$table$[[$Differential$],[$Effects$],[($Alternative $2)]]]]$

Revenues:

Proceeds from sale of old machine $

Costs:

Purchase price

Direct labor $(6$ years$)$

Profit $($loss$)$

$$

$$

$$

$$

$$

$ $$

b$.$ Should the company continue with the old machine $($Alternative $1)$ or replace the old machine $($Alternative $2)?$