Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $601,000 and has $348,600 of accumulated depreciation to date, with a new machine that has purchase price of $484,400. The old machine could be sold for $62,100. The annual variable production costs associated with the old machine are estimated to be $156,600 per year for 8 years. The annual variable production costs for the new machine are estimated to be $99,400 per year for 8 years. a.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine December 10 Line Item Description Continue with Old Machine (Alternative 1) Replace Old Machine Differential Effects (Alternative 2) (Alternative 2) Revenues: < Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Profit (loss) a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation? The sunk cost is $

Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $601,000 and has $348,600 of accumulated depreciation to date, with a new machine that has purchase price of $484,400. The old machine could be sold for $62,100. The annual variable production costs associated with the old machine are estimated to be $156,600 per year for 8 years. The annual variable production costs for the new machine are estimated to be $99,400 per year for 8 years. a.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine December 10 Line Item Description Continue with Old Machine (Alternative 1) Replace Old Machine Differential Effects (Alternative 2) (Alternative 2) Revenues: < Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Profit (loss) a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation? The sunk cost is $

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 18P: Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting...

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A company is considering replacing an old piece of machinery, which cost $598,100 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $484,000. The old machine could be sold for $61,000. The annual variable production costs associated with the old machine are estimated to be $155,500 per year for 8 years. The annual variable production costs for the new machine are estimated to be $98,800 per year for 8 years. a-1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine December 10 Line Item Description Revenues Proceeds from sale of old machine Costs Purchase price Variable productions costs (8 years) Proft (less) Feedback Continue with Old Machine (Alternative 1) Replace Old Machine…
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