Replace Equipment

A machine with a book value of $250,500 has an estimated six-year life. A proposal is offered to sell the old machine for $215,900 and replace it with a new machine at a cost of $281,300. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $49,000 to $39,200.

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a. Prepare a differential analysis dated April 11 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate subtracted or negative numbers or a loss.

Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 11

	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues:
Proceeds from sale of old machine	$fill in the blank a32bf2fab012014_1	$fill in the blank a32bf2fab012014_2	$fill in the blank a32bf2fab012014_3
Costs:
Purchase price	fill in the blank a32bf2fab012014_4	fill in the blank a32bf2fab012014_5	fill in the blank a32bf2fab012014_6
Direct labor (6 years)	fill in the blank a32bf2fab012014_7	fill in the blank a32bf2fab012014_8	fill in the blank a32bf2fab012014_9
Income (Loss)	$fill in the blank a32bf2fab012014_10	$fill in the blank a32bf2fab012014_11	$fill in the blank a32bf2fab012014_12

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

Continue with the old machineReplace the old machine