A company is considering replacing an old piece of machinery, which cost $600,000 and has $351,700 of accumulated depreciation to date, with a new machine that has a purchase price of $483,000. The old machine could be sold for $61,100. The annual variable production costs associated with the old machine are estimated to be $155,600 per year for 8 years. The annual variable production costs for the new machine are estimated to be $98,600 per year for 8 years. a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). 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) April 29 Continue with Old Machine Replace Old Machine Differential (Alternative 1) (Alternative 2) Effects (Alternative 2). Revenues: Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Income (Loss) Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation?

A company is considering replacing an old piece of machinery, which cost $600,000 and has $351,700 of accumulated depreciation to date, with a new machine that has a purchase price of $483,000. The old machine could be sold for $61,100. The annual variable production costs associated with the old machine are estimated to be $155,600 per year for 8 years. The annual variable production costs for the new machine are estimated to be $98,600 per year for 8 years. a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). 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) April 29 Continue with Old Machine Replace Old Machine Differential (Alternative 1) (Alternative 2) Effects (Alternative 2). Revenues: Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Income (Loss) Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation?

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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