Answer:
Continue with old machine
Explanation:
                                    Differential Analysis
Continue with Old Machine (Alt.1)or Replace Old Machine (Alt.2
                                              May-04
                     Continue with Old     Replace Old           Diff. effects                                        Machine (Alt. 1)      Machine (Alt.2)             (Alt. 2)  
Revenues:    
Sale ( 5 years)   803,500             803,500                       0
Costs:    
Purchase price	0                       -105,500                  105,500
Direct materials  -274,000         -274,000                      0
 ( 5 years)	
Direct labor        -190,000                0                       -190,000
 ( 5 years)
Power and          -17,500               -94,000               76,500
maintenance	
Taxes, insurance  -6,500              -21,000                14,500
etc ( 5 years)	
Selling and          -190,000             -190,000                0
administrative
expense ( 5 years)
Total expenses    -678,000            -684,500             6,500
Profit (Loss)          $125,500              $119,000           $6,500
Hence it is advantageous to continue with old machine. Net incremental advantage of continuing with old machine = $6,500