A company is considering replacing an old machine which had an initial cost of $100,000 and has $75,000 of accumulated depreciation to date.The company is considering purchasing a new machine which costs $195,000.The old machine could be sold for $20,000.The annual variable production costs associated with the old machine are estimated to be $10,000 per year for five years.The annual variable production costs for the new machine are estimated to be $2,000 per year for five years.Should the company replace the old machine and what is the sunk cost in this situation?

A. Yes; sunk cost = $40,000
B. Yes; sunk cost = $20,000
C. Yes; sunk cost = $100,000
D. No; sunk cost = $25,000

To determine whether the company should replace the old machine, we need to consider the relevant costs and benefits associated with both options.

First, let's calculate the book value of the old machine. The book value is the initial cost minus the accumulated depreciation. In this case, the book value of the old machine is $100,000 - $75,000 = $25,000.

Next, let's consider the costs and benefits of both options:

For the old machine:
- The old machine could be sold for $20,000.
- The annual variable production costs associated with the old machine are estimated to be $10,000 per year for five years.

For the new machine:
- The cost of the new machine is $195,000.
- The annual variable production costs for the new machine are estimated to be $2,000 per year for five years.

To compare the two options, we need to calculate the total cost of each option. For the old machine, the total cost over five years would be:
$20,000 (sale price) + $10,000/year * 5 years = $20,000 + $50,000 = $70,000.

For the new machine, the total cost over five years would be:
$195,000 (purchase price) + $2,000/year * 5 years = $195,000 + $10,000 = $205,000.

Comparing the two total costs, we can see that the new machine would be more expensive.

Now, let's determine the sunk cost. A sunk cost is a cost that has already been incurred and cannot be recovered. In this situation, the sunk cost would be the accumulated depreciation on the old machine, which is $75,000.

So, the correct answer is:
D. No; sunk cost = $75,000