The Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

Old Machine

Cost of machine, 10-year life$88,825Annual depreciation (straight-line)8,700Annual manufacturing costs, excluding depreciation23,710Annual non-manufacturing operating expenses5,955Annual revenue74,035Current estimated selling price of machine29,835New Machine

Purchase price of machine, six-year life$119,840Annual depreciation (straight-line)20,095Estimated annual manufacturing costs, excluding depreciation6,920Annual non-manufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

LabelsCash flows from investing activitiesCostsRevenuesAmount DescriptionsAnnual manufacturing costs (6 yrs.)Gain on sale of investmentsLoss on sale of investmentsPurchase priceProceeds from sale of old machineIncome (loss)

Differential Analysis

Contine with old machine (alt A) Replace old mach. (alt 2) Differential Effect on income (alt 2)

Revenues:

Proceeds from sale of old mach. $0 $29,835 $29835

Costs:

Purchase price $0

Annual manufacturing costs (6yrs)

Income (loss)

2. List other factors that should be considered before a final decision is reached.Check all that apply.

What opportunities are available for the use of the $90,005 of funds ($119,840 less $29,835 proceeds from the old machine) that are required to purchase the new machine?

Should management have purchased a different model of the old machine?

What effect does the federal income tax have on the decision?

Are there any improvements in the quality of work turned out by the new machine?

Was the purchase price of the old machine too high?