Question: 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

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 costs $450,000. The old equipment could be sold for $72,000. The annual variable production costs associated with the old machine are estimated to be $165,000 for eight years. The annual variable production costs for the new machine are estimated to be $112,750 for eight years.
(a) Determine the total and annualized differential income or loss anticipated from replacing the old machine.
(b) What is the sunk cost in this situation?

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