The Mendez Company Is Trying to Decide Whether to Replace

question 85

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

---

Definitions:

Standard Deviation

An index that evaluates the extent of variation or scatter of data points from the dataset's average.

Performance Management Systems

Frameworks used by organizations to monitor, manage, and improve the performance of employees through goal clarity, continuous feedback, and performance appraisals.

Creative Problem Solving

A method that uses innovative and imaginative approaches to find solutions to complex problems.

Career Development

An ongoing process of managing life, learning, and work over the lifespan to progress in one’s job and achieve personal career goals.