The Mendez Company Is Trying to Decide Whether to Replace

question 70

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:
$\begin{array}{lrr}\text { Current machine: }\\ \text {Original cost } &\$26,000\\ \text { Accumulated depreciation } &16,000\\ \text {Annual operating costs } &4,000\\ \text {Current salvage value } &4,000\\ \text {Salvage value at the end of five vears } &1,000\\\\\text { New machine: }\\ \text { Cost } &\$16,000\\ \text { Annual operating costs} &1,000\\ \text { Salvage value at the end of five years} &1,000\\\end{array}$
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:

Dissociation

A psychological condition in which there is a disconnection or lack of continuity between thoughts, memories, surroundings, actions, and identity.

Encode

The process by which information is transformed into a format that can be stored and later retrieved from memory, crucial in learning and cognition.

Factitious Disorder

A mental disorder wherein individuals deliberately fabricate, exaggerate, or induce symptoms of illness in themselves for the primary motive of assuming the sick role.

Munchhausen's

Also known as Munchausen Syndrome, it is a factitious disorder wherein individuals deliberately produce or exaggerate symptoms of illness in themselves for attention or sympathy.