6-1 MyAccountingLab Homework: Chapter 11 Question 8, E11-33 (similar to) Part 1 of 10 HW Score: 40.57%, 18.26 of 45 points O Points: 0 of 5 Save The TechMech Company produces and sells 7,500 modular computer desks per year at a selling price of $500 each. Its current production equipment, purchased for $1,800,000 and with a 5-year useful Me, is only 2 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 $500,000 However, the emergence of a new molding technology has led TechMech to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives (Click to view the data for the two alternatives.) Read the requirements Requirement 1. Should TechMech upgrade its production line or replace it? Show your calculations Determine the total relevant costs over 3 years. of an input field is not used in the table, leave the input field empty, do not enter a zero Use parentheses or a minus sign for numbers to be subtracted) Over 3 years Upgrade Replace Difference Data table 1 A 2 One-time equipment costs B C Replace Upgrade $ 2,600,000 $ 4,000,000 3 Variable manufacturing cost per desk $ 4 Remaining useful life of equipment (in years) 5 Terminal disposal value of equipment $ 130 $ 3 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 3 - X Requirements 1. Should TechMech upgrade its production line or replace it? Show your calculations. 2. Now suppose 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 rather than upgrade the old equipment? 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 Doria is TechMech's manager, and his bonus is based on operating income. Because he is likely to relocate after about a year, his current bonus is his primary concern. Which alternative would Doria choose? Explain. - Cash operating costs Current disposal price Current equipment cost nd sells 7,500 modular computer desks per year at a selling price of $500 each. Its current production equipm value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $500, ig or replacing the production equipment. The following table presents data for the two alternatives: alternatives.) One-time capital costs Revenues Total relevant costs Over 3 years grade Replace Difference