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Show me the steps to solve Integrative Cases $2-85($Static$)$ Analyze the Impact of a Decision on Income Statements $($LO $2-2)$ Assume the new testing equipment is rented and installed on December $31.$ What will be the impact on next year's divisional

operating profit? $($Enter your answers in dollars and not in millions $($i$.$e$.,2\mathrm{.}34$ million should be entered as $2,340,000).)$ Would you rent the new equipment?

Would you rent the new equipment?

You were appointed the manager of Storage Solutions Section $)$ at Milbank Technologies, a manufacturer of mobile computing part

and accessories late last year. S$3$ manufactures a drive assembly for the company's most popular product. Your bonus is determined

as a percentage of your division's operating profits before taxes.

One of your first major investment decisions was to invest $$2$ million in automated testing equipment for device testing. The

equipment was installed and in operation on January $1$ of this year.

This morning, the assistant manager of the division told you about an offer by Joliet Systems. Joliet wants to rent to S$3$ a new testing

machine that could be installed on December $31($only two weeks from now$)$ for an annual rental charge of $$460,000.$ The new

equipment would enable you to increase your division's annual revenue by $7$ percent. This new, more efficient machine would also

decrease fixed cash expenditures by $6$ percent.

Without the new machine, operating revenues and costs for the year are estimated to be as follows. Sales revenue and fixed and

variable operating costs are all cash.

If you rent the new testing equipment, $S3$ will have to write off the cost of the automated testing equipment this year because it has nc

salvage value. Equipment depreciation shown in the income statement is for this automated testing equipment. Equipment losses are

included in the bonus and operating profit computation.Variable operating costs

Fixed operating costs

Equipment depreciation

other depreciation

$400,000$

$1,500,000$

$300,000$

$250,000$Because the new machine will be installed on a company holiday, there will be no effect on operations from the changeover. Ignore

any possible tax effects. Assume that the data given in your expected income statement are the actual amounts for this year and next

year if the current equipment is kept.

Required:

a$.$ Assume the new testing equipment is rented and installed on December $31.$ What will be the impact on this year's divisional

operating profit?

b$.$ Assume the new testing equipment is rented and installed on December $31.$ What will be the impact on next year's divisional

operating profit?

c$.$ Would you rent the new equipment?

Complete this question by entering your answers in the tabs below.

Assume the new testing equipment is rented and installed on December $31.$ What will be the impact on this year's divisional

operating profit? $($Enter your answers in dollars and not in millions $($i$.$e$.,2\mathrm{.}34$ million should be entered as $2,340,000).$

Operating loss amounts should be indicated with a minus sign.$)$

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