EX $25-9$ Machine Replacement Decision

Obj. $1$

A company is considering replacing an old piece of machinery, which cost $$675,000$ and has $$380,000$ of accumulated depreciation to date, with a hew machine that has a purchase price of $$825,000.$ The old machine could be sold for $$300,000.$ The annual variable production costs associated with the old machine are estimated to be $$85,000$ per year for $8$ years. The annual variable production costs for the new machine are estimated to be $$25,000$ per year for $8$ years.

a$.$ Prepare a differential analysis dated December $10$ to determine whether to continue with $($Alternative $1)$ or replace $($Alternative $2)$ the old machine.

b$.$ What is the sunk cost in this situation?