Kim is a dvisional manager at General Rotors. Her compensation is based on the division's net income and she plans to retire in a year. Kim's division uses a major piece of machinery which keeps breaking down, causing delays until it is fixed.
Kim is considering two choices
(a) Fix the machine at a cost of $4 million (10 year life, no salvage value, straight line depreciation) OR
(b) keep fixing the machine with a repairs expense of $300,000 per year. Which decision is in Kim's best interest? Explain.
Explain next whether this decision would also be in the stockholders' best interest and why or why not.