Ron Weber is considering replacing an old machine, which he purchased for $15,000 three years ago, with some labor-saving equipment. The old machine is being depreciated at $1,500 a year. The following alternative equipment options are available for consideration.
Machine A.The purchase price of machine A is $25,000, and yearly cash operating costs are $5,000. Machine B.The purchase price of machine B is $28,000, and yearly cash operating costs are $4,500.
(a) What are the incremental costs, if any, in this alternative-choice situation?
(b) What are the sunk costs, if any, in this situation?