Replace equipment

A machine with a book value of $$248,700$ has an estimated remaining life of $6$ years. A

proposal is offered to sell the old machine for $$214,700$ and replace it with a new machine at a

cost of $$280,800.$ The new machine has a $6-$year life with no residual value. The new machine

would reduce annual direct labor costs from $$49,900$ to $$39,900.$

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 $2$

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 $2)?$

Continue with the old machine $$