The TechHelp Company produces and sells 7,500 modular computer desks per year at a selling price of $600 each. Its current production equipment, purchased for $1,500,000 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 $550,000. 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: E (Click to view the data for the two alternatives.) Read the requirements Requirement 1. Should TechHelp upgrade its production line or replace it? Show your calculations. A Data Table Determine the total relevant costs over 3 years. (If an input field is not used in the table, leave the input field e Over 3 years Upgrade Replace Difference B Cash operating costs Current disposal price Upgrade $ 2,600,000|S 4,200,000 Replace 2 One-time equipment costs One-time capital costs 3 Variable manufacturing cost per desk Remaining useful life of equipment (in 4 lyears) 155 $ 80 Total relevant costs Choose from any list or enter any number in the input fields and then click Check Answer. 5 Terminal disposal value of equipment os

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

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The TechHelp Company produces and sells 7,500 modular computer desks per year at a selling price of $ 600 each. Its current production equipment, purchased for$ 1, 500 ,000 and with a 5-year useful life, is only 2 years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of$ 550, 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:

The TechHelp Company produces and sells 7,500 modular computer desks
a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $550,000. 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:
year at a selling price of $600 each. Its current production equipment, purchased for $1,500,000 and with a 5-year useful life, is only 2 years old. It has
E (Click to view the data for the two alternatives.)
Read the requirements.
Requirement 1. Should TechHelp upgrade its production line or replace it? Show your calculations.
Data Table
Determine the total relevant costs over 3 years. (If an input field is not used in the table, leave the input field er
Over 3 years
Upgrade
Replace
Difference
A
B
Cash operating costs
Current disposal price
1
Upgrade
Replace
2 One-time equipment costs
$ 2,600,000 $ 4,200,000
One-time capital costs
155 $
3 Variable manufacturing cost per desk
Remaining useful life of equipment (in
4 lyears)
$
80
Total relevant costs
3
Choose from any list or enter any number in the input fields and then click Check Answer.
5 Terminal disposal value of equipment

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