Question - Machine Replacement Decision
Picasso Industries is considering replacing an old piece of machinery, which cost $150,000 and has $70,000 of accumulated depreciation to date, with a new machine that costs $175,000. The old equipment could be sold for $60,000. The annual variable production costs associated with the old machine are estimated to be $95,000 for eight years. The annual variable production costs for the new machine are estimated to be $72,000 for eight years.
a. Determine the total and annualized differential income or loss anticipated from replacing the old machine. Enter all amounts as positive numbers.
Net differential $
Annual differential $
b. What is the sunk cost in this situation?