Question 2 & 3 with workings

Cari Heat (CH) Ltd. is currently faced with a critical decision regarding its production equipment. Cari Heat (CH) is evaluating two options for its production equipment: upgrading or replacing. The company manufactures and sells 7,500 heaters every year, each priced at $920. The current production equipment, which was acquired at a cost of $2,150,000, has been in use for just two years and is subject to straight-line depreciation over a five-year useful life. Furthermore, it possesses no terminal disposal value, but it can be currently sold for $650,000. The following table presents data for the two alternatives: Required 1. Prepare a schedule, for the remaining 3 years, reflecting whether CH should upgrade its production line or replace it? 2. Assuming that all other data are as given previously stated, calculate CH 's maximum allowable cost for replacement versus upgrading, where there is a negotiable one-time replacement of the production equipment? 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 CH : a) Upgrade the equipment? b) Replace the equipment? 4. Nick Koe is CH's manager, who will be relocated after one year and whose bonus is based on operating income. Given unchanged data, evaluate Nick's decision-making process and which alternative he would choose, taking into account his relocation and bonus dependence