WQ5 (9 points in total) Pied Piper produces and sells 7,500…
WQ5 (9 points in total) Pied Piper produces and sells 7,500 PiperNets per year at a selling price of $100 each. Its current production equipment, purchased for $1,500,000 and with a five-year useful life, is only one year 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 $400,000. However, the emergence of a new molding technology has led Pied Piper to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives: Replace Upgrade One-time equipment costs $4,500,000 $2,000,000 Variable Manufacturing cost per desk $50 $100 Remaining useful life of equipment (years) 4 4 Terminal disposal value of equipment $5,000 $0
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