A company is considering replacing an old piece of machinery, which cost $105,000 and has $55,000 of accumulated depreciation to date, with a new machine that has a purchase price of $83,000. The old machine could be sold for $56,300. The annual variable production costs associated with the old machine are estimated to be $8,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $5,000 per year for eight years. a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
b. What is the sunk cost in this situation?