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?

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Definitions:

Milgram Experiment

A psychological experiment conducted by Stanley Milgram in the 1960s to study obedience to authority, where participants were instructed to administer electric shocks to another person.

Stanford University Prison Experiment

A psychological study conducted by Philip Zimbardo in 1971 at Stanford University, where students were assigned roles of prisoners and guards to explore the effects of perceived power.

Generalization

Drawing a conclusion about a certain characteristic of a population based on a sample from it.

Logical Support

The provision of reasons or evidence to justify a claim or argument.