Replace Equipment

A machine with a book value of $$251,500$ has an estimated remaining life of $6$ years. A proposal is offered to sell the old machine for $$216,200$ and replace it with a new machine at a cost of $$280,800.$ The new machine has a $6-$year life with no residual value. The new machine would reduce annual direct labor costs from $$50,800$ to $$40,600.$

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 $2)?$

$$