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Resort Corporation manufactures furniture in several divisions, including the patio furniture division. The manager of the patio furniture division plans to retire in 2 years.
Resort Corporation manufactures furniture in several divisions, including the patio furniture division. The manager of the patio furniture division plans to retire in 2 years. The manager receives a bonus based on the division's ROI, which is currently 9%. One of the machines that the patio furniture division uses to manufacture the furniture is rather old, and the manager must decide whether to replace it. (Click the icon to view information on the replacement decision.) Read the requirements. Requirements 1. Should Resort Corporation replace the machine? Why or why not? 2. Assume that "investment" is defined as average net long-term assets (that is, after depreciation) during the year. Compute the project's ROI for each of its first 5 years. If the patio furniture manager is interested in maximizing his bonus, would he replace the machine before he retires? Why or why not? 3. What can Resort do to entice the manager to replace the machine before retiring? Resort Corporation manufactures furniture in several divisions, including the patio furniture division. The manager of the patio furniture division plans to retire in 2 years. The manager receives a bonus based on the division's ROI, which is currently 9%. One of the machines that the patio furniture division uses to manufacture the furniture is rather old, and the manager must decide whether to replace it. (Click the icon to view information on the replacement decision.) Read the Requirement 1. Should Resort Corporation replace the mashine? Why or why not? Resort would be better off if they replace the machine. Its cost of capital and the IRR of the investment indicate that this is a net present value project
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