Question
You were appointed the manager of Storage Solutions Section (S3) at Milbank Technologies, a manufacturer of mobile computing parts and accessories, late last year.
You were appointed the manager of Storage Solutions Section (S3) at Milbank Technologies, a manufacturer of mobile computing parts and accessories, late last year. S3 manufactures a drive assembly for the company's most popular product. Your bonus is determined as a percentage of your division's operating profits before taxes. One of your first major investment decisions was to invest $2 million in automated testing equipment for device testing. The equipment was installed and in operation on January 1 of this year. This morning, the assistant manager of the division told you about an offer by Joliet Systems. Joliet wants to rent to S3 a new testing machine that could be installed on December 31 (only two weeks from now) for an annual rental charge of $460,000. The new equipment would enable you to increase your division's annual revenue by 7 percent. This new, more efficient machine would also decrease fixed cash expenditures by 6 percent. Without the new machine, operating revenues and costs for the year are estimated to be as follows. Sales revenue and fixed and variable operating costs are all cash.
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