Answer:
Answer is explained below.
Explanation:
A.
Assume the new testing equipment is rented and installed on December 31 and impact on this year's divisional operating profit
Loss from equipment write-off
Sales revenue 9,820,000
Operating costs:
Variable -1,190,000
Fixed (cash expenditures) -4,390,000
Equipment depreciation -960,000
Other depreciation -710,000
Loss from equipment write-off -5,040,000
Operating profit (loss) before taxes
Operating profit (loss) before taxes=-$2,470,000(Loss)
Loss from equipment write-off= Value of equipment -Equipment Depreciation =$6,000,000-$960,000=$5,040,000
B.
Assume the new testing equipment is rented and installed on December 31. and the impact on next year's divisional operating profit
Sales revenue 9,820,000+690,900=10,510,900 Add 7% of 9,820,000=690,900
Operating costs:
Equipment rental -1,370,000
Variable -1,190,000
Fixed cash expenditures -4,390,000+263,400=-4,126,600 6%of 4,390,000=263400
Equipment depreciation -960,000
Other depreciation -710,000
Operating profit (loss) before taxes 2,154,300(Profit)
C.
Would you rent the new equipment - Yes Because it is benificial for Company as it is earning profit of $2,154,300
