10.28 Equipment upgrade versus replacement TechMech Ltd produces and sells 7500 modular computer besks per year at a selling price of $750 each. Its current production equipment, purchased for S1 800 000 and with a five year useful life, only two years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis, The equipment has a current disposal price of $450.000. However, the emergence of a new moulding technology has led Tech Mech to consider either upgrading or replacing the production equipment. The following table presents data for the two options: $4 800 000 XX ple Home Insert Page Layout Formulas Data Review View B 1 Upgrade Replace 2 One-time equipment costs $3 000 000 3 Variable production cost per desk 150 $ 4 Remaining useful life of equipment (years) 3 5 Terminal disposal value of equipment 0 $ All equipment costs will continue to be depreciated on a straight-line basis. For simplicity, ignore income taxes and the time value of money. $ 75.) $ 0 Required 1. Should TechMech upgrade its production line or replace it? Show your calculations. 2. Now suppose that the one-time equipment cost to replace the production equipment is somewhat negotiable. All other data are as given previously. What is the maximum one-time equipment cost that TechMech would be willing to pay to replace the old equipment rather than upgrade T? 3. * Assume that the capital expenditures to replace and upgrade the production equipment are as given in the original exercise, but that the production and sales quantity is not known. For what production and sales quantity would TechMech: (a) upgrade the equipment or (b) replace the equipment 4. Assume that all data are as given in the original exercise. Dan Marcini is TechMech's manager and his bonus is based on operating profit. Because he is likely to relocate after about a year, his current bonus is his primary concern. Which option would Dan Marcini choose? Explain