Chapter 25 Homework Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $601,500 and has $351,000 of accumulated depreciation to date, with a new machine that has a purchase price of $485,300. The old machine could be sold for $61,400. The annual variable production costs associated with the old machine are estimated to be $157,300 per year for eight years. The annual variable production costs for the new machine are estimated to be $98,700 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 "O". 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 Continue Replace Differential with old old Effect Machine Machine on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues: Proceeds from sale of old machine 0 61,400 61,400 Costs: Purchase price 0 -485,300 -485,300 Variable productions costs (8 years) Income (Loss) $ Feedback Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. Replace the old machine Feedback b. What is the sunk cost in this situation? The sunk cost is $ Feedback Feedback