Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,800 and has $348,900 of accumulated depreciation to date, with a new machine that has a purchase price of $486,800. The old machine could be sold for $62,500. The annual variable production costs associated with the old machine are estimated to be $157,700 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,500 per year for eight years. a. Prepare a differential analysis dated April 29 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) April 29 Revenues: Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Income (Loss) Feedback Check My Work Differential Effect on Income Continue with Old Replace Old Machine Machine (Alternative 1) (Alternative 2) (Alternative 2) Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. Replace the old machine
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,800 and has $348,900 of accumulated depreciation to date, with a new machine that has a purchase price of $486,800. The old machine could be sold for $62,500. The annual variable production costs associated with the old machine are estimated to be $157,700 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,500 per year for eight years. a. Prepare a differential analysis dated April 29 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) April 29 Revenues: Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Income (Loss) Feedback Check My Work Differential Effect on Income Continue with Old Replace Old Machine Machine (Alternative 1) (Alternative 2) (Alternative 2) Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. Replace the old machine
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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6.)
Transcribed Image Text:b. What is the sunk cost in this situation?
The sunk cost is $
Transcribed Image Text:Machine Replacement Decision
A company is considering replacing an old piece of machinery, which cost $600,800 and has $348,900 of accumulated depreciation to date, with a new machine that has a
purchase price of $486,800. The old machine could be sold for $62,500. The annual variable production costs associated with the old machine are estimated to be
$157,700 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,500 per year for eight years.
a. Prepare a differential analysis dated April 29 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)
April 29
Revenues:
Proceeds from sale of old machine
Costs:
Purchase price
Variable productions costs (8 years)
Income (Loss)
Feedback
Check My Work
Differential
Effect
on Income
Continue
with Old
Replace
Old
Machine
Machine
(Alternative 1) (Alternative 2) (Alternative 2)
Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
Replace the old machine
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