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Machine Replacement Decision Creekside Products Inc. is considering replacing an old piece of machinery, which cost $2,495,00

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Answer #1

Solution a:

Continue with Old Machine (Alt. 1). Replace Old Machine Differential effect on (Alt. 2) Income (Alt.2) $0.00 $296,000.00 $296

Net differential income = $163,200

Annual differential income = 163200/8 = $20,400

Solution b:

Sunk cost = $2495000 - $1463000 = $1,032,000, the book value of present equipment.

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