The TechGuide Company produces and sells 7,500 modular computer desks per year at a selling price of $750 each. Its current production equipment, purchased for $1,800,000 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 $450,000. However, the emergence of a new molding technology has led TechGuide to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives: One-time equipment costs Variable manufacturing cost per desk Remaining useful life of equipment Terminal disposal value of equipment Upgrade $3,000,000 $ 150 3 yrs $0 Replace $4,800,000 $75 3 yrs $0 All equipment costs will continue to be depreciated on a straight-line basis. Should TechGuide upgrade its production line or replace it? Show your calculations.
The TechGuide Company produces and sells 7,500 modular computer desks per year at a selling price of $750 each. Its current production equipment, purchased for $1,800,000 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 $450,000. However, the emergence of a new molding technology has led TechGuide to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives: One-time equipment costs Variable manufacturing cost per desk Remaining useful life of equipment Terminal disposal value of equipment Upgrade $3,000,000 $ 150 3 yrs $0 Replace $4,800,000 $75 3 yrs $0 All equipment costs will continue to be depreciated on a straight-line basis. Should TechGuide upgrade its production line or replace it? Show your calculations.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:The TechGuide Company produces and sells 7,500 modular computer desks per year at a selling price
of $750 each. Its current production equipment, purchased for $1,800,000 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 $450,000. However, the emergence of a new
molding technology has led TechGuide to consider either upgrading or replacing the production
equipment. The following table presents data for the two alternatives:
One-time equipment costs
Variable manufacturing cost per desk
Remaining useful life of equipment
Terminal disposal value of equipment
Upgrade
$3,000,000
$ 150
3 yrs
$0
Replace
$4,800,000
$75
3 yrs
$0
All equipment costs will continue to be depreciated on a straight-line basis. Should TechGuide upgrade
its production line or replace it? Show your calculations.
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