The TechHelp Company produces and sells 6,600 modular computer desks per year at a selling price of $550 each. Its current production equipment, purchased for $1,950,000 and with a 5-year useful life, 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 $600,000. However, the emergence of a new molding technology has led TechHelp 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. Cash Operating Costs - Disposal Price + X $1,782,000 $600,000 + X S Total Relevant Costs $6,072,000 The maximum one-time equipment cost that TechHelp will be willing to pay to replace the old equipment rather than upgrade it is 4,890,000 $ Requirement 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 TechHelp (a) upgrade the equipment or (b) replace the equipment? First determine the equation you will use to calculate the quantity TechHelp would use to base its decisions. Then select the amounts that will be used in the equation. (Round to the nearest whole number when solving for y.) < or > Upgrade (Var. mfg cost per desk x y) + One-time equip. cost $140 y + $3,300,000 Replace (Var. mfg cost per desk xy)- Disposal price + One-time equip. cost $90 y $600,000 + $4,100,000 Based on the equation above, TechHelp will upgrade when y is less than 4,000 and will replace when y is greater than 4,000 Requirement 4. Assume that all data are as given in the original exercise. Dan Doria is TechHelp'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. Begin by calculating the operating income under each alternative. (If an input field is not used in the table, leave the input field empty; do not enter a zero. Round all amounts to the nearest whole number.) Revenues Cash operating costs Depreciation Over 1 Year Upgrade Replace 2,772,000 2,772,000 1,366,667 Loss on disposal of old equipment Total costs Operating income Choose from any list or enter any number in the input fields and then click Check Answer. Data Table A B C 1 Upgrade Replace 2 One-time equipment costs 3 Variable manufacturing cost per desk $ $ 3,300,000 $ 4,100,000 140 S 90 4 Remaining useful life of equipment (in years) 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.