Replace Equipment

A machine with a book value of $247,900 has an estimated six-year life. A proposal is offered to sell the old machine for $217,300 and replace it with a new machine at a cost of $280,300. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $49,700 to $39,800.

Question Content Area

Prepare a differential analysis dated October 3 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) October 3

	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues:
Proceeds from sale of old machine
Costs:
Purchase price
Direct labor (6 years)
Income (Loss)