The TechMech Company produces and sells 6,000 modular computer desks per year at a selling price of $500 each. Its current production equipment, purchased for $1,500,000 and with a five-year useful life, is only two years old. It has a terminal disposal value of 50 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 TechMech to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives: B Click icon to view the data.) Requirements 1. Should TechMech upgrade its production line or replace it? Show your calculations. (Only complete the necessary answer boxes.) Over 3 years Difference Upgrade Replace in favour of Replace Cash operating costs Current disposal price One time capital costs, written off periodically as depreciation Total relevant costs i - Data Table Upgrade Replace One-time equipment costs $ 2,700,000 $ 4,200,000 Variable manufacturing cost per desk $ 140 $ 80 Remaining useful life of equipment (years) 3 3 Terminal disposal value of equipment 0 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. Print Done 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. Print Done