Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,280. The freight and installation costs for the equipment are $650. If purchased, annual repairs and maintenance are estimated to be $400 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,460 per year for four years, with no additional costs.

Prepare a differential analysis dated December 3, to determine whether Sloan should lease (Alternative 1) or purchase (Alternative 2) the machine. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the machine user, as opposed to the machine owner.) If an amount is zero, enter "0". Use a minus sign to indicate a loss.

Differential Analysis

Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2)

December 3

Lease Equipment (Alternative 1)

Buy Equipment (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$

$

$

Costs:

Purchase price

$

$

$

Freight and installation

Repair and maintenance (4 years)

Lease (4 years)

Income (loss)

$

$

$

Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $602,700 and has $350,600 of accumulated depreciation to date, with a new machine that has a purchase price of $483,000. The old machine could be sold for $61,600. The annual variable production costs associated with the old machine are estimated to be $155,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,200 per year for eight years.

a.1 Prepare a differential analysis dated September 13, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
September 13
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues:
Proceeds from sale of old machine	$	$	$
Costs:
Purchase price
Variable productions costs (8 years)
Income (Loss)	$	$	$

The sunk cost is the $.