A company is considering replacing an old piece of machinery, which cost $520,000 and has $300,000 of accumulated depreciation to date, with a new machine that costs $445,000. The old equipment could be sold for $85,000. The variable production costs associated with the old machine are estimated to be $160,000 for six years. The variable production costs for the new machine are estimated to be $90,000 for six years.
a. Determine the differential annual income or loss from replacing the old machine.
b. What is the sunk cost in this situation?