Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 11

Compensation; Net Present Value Glee Candy Co. makes chewy chocolate candies at a plant in Winston-Salem, North Carolina. Brian Bishop, the production manager at this facility, installed a packaging machine last year at a cost of $400,000. This machine is expected to last for 10 more years with no residual value. Operating costs for the projected levels of production are $95,000 annually.
Brian has just learned of a new packaging machine that would work much more efficiently in Glee's production line. This machine would cost $520,000 installed, but the annual operating costs would be only $30,000. This machine would be depreciated over 10 years with no residual value. He could sell the current packaging machine this year for $180,000.
Brian has worked for Glee for seven years. He plans to remain with the firm for about two more years, when he expects to become a vice president of operations at his father-in-law's company. Glee pays Brian a fixed salary with an annual bonus of 5% of net income for the year.
Assume that Glee uses straight-line depreciation and has a 10% required rate of return. Ignore income-tax effects.
Required
1. As the owner of Glee, would you want Brian to keep the current machine or purchase the new one
2. Why might Brian not prefer to make the decision that the owner of Glee desires