Replace equipment

A machine with a book value of $87,500 has an estimated five-year life. A proposal is offered to sell the old machine for $47,500 and replace it with a new machine at a cost of $67,000. The new machine has a five-year life with no residual value. The new machine would reduce annual direct labor costs from $10,800 to $7,900.

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Open spreadsheet

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 costs, losses, or negative differential effect on income.

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 Effects (Alternative 2)
Revenues:
Proceeds from sale of old machine		$fill in the blank 2		$fill in the blank 3		$fill in the blank 4
Costs:
Purchase price		fill in the blank 5		fill in the blank 6		fill in the blank 7
Direct labor (5 years)		fill in the blank 8		fill in the blank 9		fill in the blank 10
Profit (Loss)		$fill in the blank 11		$fill in the blank 12		$fill in the blank 13

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