Replace Equipment

A machine with a book value of $$80,000$ has an estimated five$-$year life. A proposal is offered to sell the old machine for $$50,500$ and replace it with a new machine at a cost of $$75,000.$ The new machine has a five$-$year life with no residual value. The new machine would reduce annual direct labor costs from $$11,200$ to $$7,400.$

Prepare a differential analysis dated April $11$ 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$.2)$

April $11$

April $11$

$\backslash$table$[[$Continue with$],[$Old Machine$],[($Alternative $1)]]$

$\backslash$table$[[$Replace Old$],[$Machine$]]$

$\backslash$table$[[$Differential Effect$],[$on Income$],[($Alternative $2)]]$

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