Replace Equipment

A machine with a book value of $249,800 has an estimated six-year life. A proposal is offered to sell the old machine for $214,700 and replace it with a new machine at a cost of $281,000. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $50,500 to $40,400.

Note: Consider an outflow a negative value; an inflow a positive value. If an amount is zero, enter "0".

Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)? SelectContinue with the old machineReplace the old machine

Hide Prepare a differential analysis dated February 18, 2014, on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Differential Analysis Continue with old Machine (Alt. 1) or Replace Old Machine (Alt.2) February 18,2014 Continue with old Machine (Alternative 1) Replace old Machine (Alternative 2 Differential Effect on Income (Alternative 2 Revenues: Proceeds from sale of old machine 214,700 281,000 66,300 Costs Purchase price -31,200 249,800 281,000 Direct labor (6 years) 50,500 40,400 10,100 -87,400 85,600 Income (Loss) Hide Feedback Incorrect