Replace Equipment

A machine with a book value of $250,700 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 $281,900. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $49,800 to $39,800.

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 4ef908f5c04505a_1	$fill in the blank 4ef908f5c04505a_2	$fill in the blank 4ef908f5c04505a_3
Costs:
Purchase price	fill in the blank 4ef908f5c04505a_4	fill in the blank 4ef908f5c04505a_5	fill in the blank 4ef908f5c04505a_6
Direct labor (6 years)	fill in the blank 4ef908f5c04505a_7	fill in the blank 4ef908f5c04505a_8	fill in the blank 4ef908f5c04505a_9
Income (Loss)	$fill in the blank 4ef908f5c04505a_10	$fill in the blank 4ef908f5c04505a_11	$fill in the blank 4ef908f5c04505a_12

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