Johnson Co. is considering replacing a machine that has been used for four years. Assume neither the new or old machine has a residual value. Yearly revenue and nonmanufacturing expenses are not expected to be impacted. Old Machine Cost, 10 year life Annual Depreciation Annual Manufacturing Costs (excl. Dep.) Annual nonmanufacturing expenses Annual product revenue 3. Selling price of machine 108,000 10,800 38,600 12,300 95,000 35,900 5 New Machine Cost, 6 year life Annual Depreciation 3 Annual Manufacturing Costs (excl. Dep.) 138,000 23,000 18,200 0 1. Prepare a differential anaysis comparing present machine (Alt. 1) to new machine (Alt. 2). Analysis should indicate total differential income over the six-year period if the new machine is purchased. TO Old Machine (Alt. 1) New Machine (Alt. 2) Differential Income Revenues Costs Income (Loss) 2. Which Alternative would you propose? What other factors should be considered? 3. What if you could invest the funds required to purchase the new equipment (Cost less proceeds from sale of old machine) at 4% per year. Does this change your viewpoint? What does this indicate of the limitations of this method for evaluating an investment proposal