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 $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 TechMech to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives:

	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.

REQUIRED

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. (Round your answers to the nearest whole dollar. Do not leave any cells blank.)

Use the table below to compute the operating income for each of the options.

	Upgrade	Replace
Revenues
Cash operating costs
Depreciation
Loss on disposal of old equipment
Total costs
Operating Income