Machine replacement decisionA company is considering replacing an old piece of machinery, whichcost $400,000 and has $175,000 of accumulated depreciation to date, witha new machine that has a purchase price of $550,000. The old machinecould be sold for $250,000. The annual variable production costsassociated with the old machine are estimated to be $72,500 per year foreight years. The annual variable production costs for the new machineare estimated to be $24,000 per year for eight years.a. Prepare a differential analysis dated May 29 to determinewhether to continue with (Alternative 1) or replace (Alternative 2)the old machine.b. What is the sunk cost in this situation?
Machine replacement decision
A company is considering replacing an old piece of machinery, which
cost $400,000 and has $175,000 of
a new machine that has a purchase price of $550,000. The old machine
could be sold for $250,000. The annual variable production costs
associated with the old machine are estimated to be $72,500 per year for
eight years. The annual variable production costs for the new machine
are estimated to be $24,000 per year for eight years.
a. Prepare a differential analysis dated May 29 to determine
whether to continue with (Alternative 1) or replace (Alternative 2)
the old machine.
b. What is the sunk cost in this situation?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
