There is a company called Walmart, and it deals with machining work that is
conventional. A variety of machines are used within the company, and these machines
are frequently restored and changed.
George Bush is the manager of this factory, and he has given permission to acquire an
automated machine from Machine Ltd. at a price of $2,000,000. Recently, the new
automated machine was set up. It is believed that this new machine will last for 10 years
and this new machine will incur operating costs of $700,000 (on a yearly basis). By the
end of the 10 years, the machine will be useless.
George Bush’s salary is $75,000 and he also obtains ½ of 1% of the corporate net income
as his yearly bonus. Brad thinks he will stay with Walmart for an additional 2 years.
Afterwards, he believes that by moving to a different company he will obtain a hefty
salary increase and a promotion.
Super Machine Ltd. (another company) is offering a new machine. This machine
executes the same jobs as the new machine from Machine Ltd. George Bush has his
reservations about this new growth. The machine at Super Machine Ltd. costs $2,500,000
and has the capability of lasting for 10 years. The yearly operating costs are $300,000 and
after 10 years the machine will have a nil salvage value. It has caused Walmart’s machine
as outdated and the net of salvage, its present amount has gone down to $500,000.
Based on the following questions, ignore income taxes and make the assumption that the
company’s compulsory return is 14%. In order to calculate the depreciation, this
company uses the straight-line method.
a) From the company’s view point, what is the best conclusion?
b) What do you think is George Bush’s desired conclusion? Make sure to include the
computations of income.
c) By incorporating short-run financial methods of accomplishment as incentives for
rewards, what do you think would be the motivation difficulties?
d) How can the discrepancies in parts (a) and (b), and the motivation difficulties in
part (c) be diminished?