Replace equipment
A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The old machine could be sold for $231,000. The annual variable production costs associated with the old machine are estimated to be $61,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $19,000 per year for eight years.
a.) How do i calculate a differential analysis dated September 13 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2).
b.) What is the sunk cost in the scenario?
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