Machine Replacement Decision

Creekside Products Inc. is considering replacing an old piece of machinery, which cost $3,563,000 and has $2,090,000 of accumulated depreciation to date, with a new machine that costs $2,679,200. The old machine could be sold for $423,200. The annual variable production costs associated with the old machine are estimated to be $972,300 for eight years. The annual variable production costs for the new machine are estimated to be $661,200 for eight years.

a. Determine the total and annualized differential income or loss anticipated from replacing the old machine.

Net differential	income	$
Annual differential	income	$

b. What is the sunk cost in this situation? $, the book value of the present equipment.