Gutenberg Publishers Inc. is considering replacing a machine that has been used in its factory for 4 years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

Old Machine
Line Item Description Amount
Cost of machine, 10-year life $120,000
Annual depreciation (straight-line) 12,000
Annual manufacturing costs, excluding depreciation 30,000
Annual nonmanufacturing operating expenses 22,500
Annual revenue 90,000
Current estimated selling price of the machine 40,000

New Machine
Line Item Description Amount
Purchase price of machine, 6-year life $160,000
Annual depreciation (straight-line) 16,000
Estimated annual manufacturing costs, excluding depreciation 7,500
Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Required:

Question Content Area
1. Prepare a differential analysis as of November 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential profit that would result over the 6-year period if the new machine is acquired. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

Differential Analysis
Continue with (Alt. 1) or Replace (Alt. 2) Old Machine
November 30
Line Item Description Continue with Old
Machine (Alternative 1) Replace Old Machine
(Alternative 2) Differential Effect
(Alternative 2)
Revenues:
Proceeds from sale of old machine $Proceeds from sale of old machine
$Proceeds from sale of old machine
$Proceeds from sale of old machine
Costs:
Purchase price Purchase price
Purchase price
Purchase price
Annual manufacturing costs (6 yrs.) Annual manufacturing costs (6 yrs.)
Annual manufacturing costs (6 yrs.)
Annual manufacturing costs (6 yrs.)
Profit (loss) $Profit (loss)
$Profit (loss)
$Profit (loss)
Question Content Area
2. Identify the factor that needs to be considered for asset replacement decision in a company.

a. The quality of the machine and its working capacity
b. The federal taxes payable
c. The amount of investment required to replace or purchase the new machine
d. All the above