Replacing an old machine will increase operating income in the long run, but NOT for this year. A manager may choose not to replace the machine if performance evaluations are based on performance over a single year.

Question

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Replacing an old machine may require a significant initial investment, resulting in reduced operating income in the short term. However, over the long run, the newer and more efficient machine will likely improve productivity and reduce operating costs, resulting in higher operating income. If a manager's performance evaluation is based solely on performance over a single year, they may be hesitant to make the investment, as the short-term reduction in operating income could negatively impact their evaluation.

Replacing an Old Machine Will Increase Operating Income in the Long