The Mendez Company Is Trying to Decide Whether to Replace

question 131

Essay

The Mendez Company is trying to decide whether to replace a packing machine that it uses to pack salsa into individual serving size packages.The following information is provided: $\begin{array}{|l|lr|}\hline \text { Current machine: }\\\hline \text { Original cost } & \$ & 26,000 \\\hline \text { Ac cumulate d depreciation } & & 16,000 \\\hline \text { Annual operating costs } & & 4,000 \\\hline \text { Current salvage value } & & 4,000 \\\hline \text { Salvage value at the end of five years } & & 1,000\\\hline \\\hline \text { New machine: }\\\hline \text { Cost } & \$ & 16,000 \\\hline \text { Annual operating costs } & & 1,000 \\\hline \text { Salvage value at the end of five years } & & 1,000\\\hline\end{array}$ Required:
1)Compute the increase or decrease in total net income over the five-year period if the company chooses to buy the new machine.
2)Compute the impact on the company's net income in the first year if the current machine is replaced.Do not take depreciation into account.
3)Under what circumstances might a manager not take the action that is in the best interest of the firm in the long run?

Understand the concept of producer surplus and how it is calculated.

Recognize the effects of price ceilings on consumer and producer surplus.

Analyze the impact of market equilibrium on consumer and producer surplus.

Identify the consequences of government intervention in competitive markets through price ceilings.

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Definitions:

Animate

To bring to life or endow with movement, often used in the context of creating motion in graphics or characters in multimedia.

Tedious

Describes a task or activity that is boring and too long or repetitive.

Distracting

Anything that diverts attention away from the intended focus or task, causing a decrease in productivity or concentration.

Question-And-Answer

A format commonly used in interviews, discussions, and documents where questions are posed and then answered.