Answer:
Replacing the old machine would produce a net saving of $1,300
The sunk cost in this situation is the purchase cost (i.e $105,000) of the old machine. 
Explanation:
<em>Differential Analysis</em>
Purchase cost of the new machine                                 (83,000)
Savings from annual variable cost(8500×8)                   68,000
Variable cost of running the new machine (5,000×8)   (40,000)
Scrap value of the old machine                                    <u>    56,300 </u>   
Differential savings                                                       <u>      1,300   </u> 
Replacing the old machine would produce a net saving of $1,300
The sunk cost in this situation is the purchase cost (i.e $105,000) of the old machine. It is a past cost incurred as a result old decision.