Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $598,700 and has $349,100 of accumulated depreciation to date, with a new machine that has a purchase price of $484,700. The old machine could be sold for $63,400. The annual variable production costs associated with the old machine are estimated to be $157,400 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,000 per year for eight years.

a.1 Prepare a differential analysis dated May 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
May 29
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:
Proceeds from sale of old machine	$fill in the blank 04aa73ff8fd4fd2_1	$fill in the blank 04aa73ff8fd4fd2_2	$fill in the blank 04aa73ff8fd4fd2_3
Costs:
Purchase price	fill in the blank 04aa73ff8fd4fd2_4	fill in the blank 04aa73ff8fd4fd2_5	fill in the blank 04aa73ff8fd4fd2_6
Variable productions costs (8 years)	fill in the blank 04aa73ff8fd4fd2_7	fill in the blank 04aa73ff8fd4fd2_8	fill in the blank 04aa73ff8fd4fd2_9
Profit (Loss)	$fill in the blank 04aa73ff8fd4fd2_10	$fill in the blank 04aa73ff8fd4fd2_11	$fill in the blank 04aa73ff8fd4fd2_12

a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.

b. What is the sunk cost in this situation?

The sunk cost is $fill in the blank _.