(Pay plan, age, and suboptimization) Bama Beans Inc. has operations in 13 states. Bama Beans is in the business of growing soybeans and processing the beans into two products: soybean oil and soybean meal. These products are then sold for various commercial uses. Operations in each state are under the control of an autonomous state manager whose performance is evaluated (in large part) based on the magnitude of annual profit. State managers typically receive an annual bonus equal to .5 percent of net state profits. The manager of North Carolina operations is Beano DuMars. Beano has just turned 63 years old and has been with Bama Beans for 39 years. He would like to sell his existing bean crusher and purchase a new, technologically superior one. To evaluate the feas¬ ibility of such a move, Beano’s controller prepared the information presented below. This information has created a tremendous dilemma for Beano.

a. Assume Beano expects to retire when he reaches age 65. Compute the effect of purchasing the new crusher on Beano’s divisional profit and his compen¬ sation over his remaining career with Bama Beans.

b. If Beano had just turned 60 rather than 63, what would be the effect of purchasing the new crusher on Beano’s compensation over his remaining career?

c. Is Beano’s age likely to be an important factor in his decision regarding the purchase of the new crusher?

d. Would Beano’s superiors prefer that he purchase the new crusher? Explain.

Incremental cost of the new crusher: Expected remaining life of the old crusher: Expected life of the new crusher: Expected effect of the new crusher on net profit for the next 5 years: Year 1: Decrease in operating costs: Loss on disposal of old crusher Net change in profit Year 2: Net increase in profit Year 3: Net increase in profit Year 4: Net increase in profit Year 5: Net increase in profit $2,000,000 5 years 5 years $ 600,000 1,500,000 $ (900,000) 400,000 400,000 510,000 600,000