A company is considering replacing an old piece of machinery, which cost $4,878,000 and has $2,861,000 of accumulated depreciation to date, with a new machine that costs $3,668,000. The old equipment could be sold for $579,200. The annual variable production costs associated with the old machine are estimated to be $1,290,800 for eight years. The annual variable production costs for the new machine are estimated to be $864,800 for eight years.
a. Determine the total and annualized differential income or loss anticipated from replacing the old machine
Net differential
Annual differential
b. What is the sunk cost in this situation?