Machine replacement: builder Michael Trencher, a concrete layer, bought his current cement mixer two years ago for $4500, and it has one more year of life remaining. He is using straight-line depreciation for the mixer. He could purchase a new mixer for $950, but it would only last one year. Michael knows that the new mixer would save him $1300 in annual operating expenses compared to the existing one. Consequently he has decided against buying the new mixer, since doing so would result in a loss of $200 over the next year.

Explain how Michael arrived at a $200 loss for the next year if the new cement mixer were purchased.

Evaluate Michael's analysis and decision and correct analysis of the decision.