Replace Equipment

A machine with a book value of $$248,700$ has an estimated remaining life of $6$ years. A proposal is offered to sell the old machine

for $$216,700$ and replace it with a new machine at a cost of $$280,400.$ The new machine has a $6-$year life with no residual value.

The new machine would reduce annual direct labor costs from $$50,300$ to $$40,200.$

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

machine $($Alternative $2).$ If an amount is zero, enter $"0".$ If required, use a minus sign to indicate a loss.

Differential Analysis

Continue $($Alt$.1)$ or Replace $($Alt$.2)$ Old Machine

June $2$

Revenues:

Proceeds from sale of old machine $

Costs:

Purchase price

Direct labor $(6$ years$)$

Profit $($loss$)$

b$.$ Should the company continue with the old machine $($Alternative $1)$ or replace the old machine $($Alternative $2)?$

Continue with the old machine