A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of accumulated depreciation to date, with a new machine that costs $528,000. The old machine could be sold for $82,000. The annual variable production costs associated with the old machine are estimated to be $167,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $109,000 per year for eight years.
1. Prepare a differential analysis dated September 11, 2014, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
2. What is the sunk cost in this situation?
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