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:

Perceived Threats

Situations or stimuli that an individual views as potentially harmful or dangerous, whether physically or psychologically.

Cognitive Theorists

Scholars and psychologists who study the mental processes underlying knowledge, thinking, and decision-making.

Harmless Situations

Situations that pose no threat or danger to an individual or entity.

Phobic Responses

Extreme or irrational fear reactions triggered by specific objects, situations, or activities.