Scenario 1 A potential 6-year project requires the purchase of a new piece of machinery. Assume,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Scenario 1 A potential 6-year project requires the purchase of a new piece of machinery. Assume, you are the project manager and you must choose between two potential machines (Machine A and Machine B), either of which would be suitable. The cost of each machine is identical at $83,000. However, they differ in performance such that the projected future cash flows are different for each machine. Projected cash flows over the 6 years of the project are as follows in Table 1: Year 0 1 2 3 4 5 6 Cash Flow: Machine A -$83,000 $5,000 $8,000 $12,000 $20,000 $25.000 $30,000 Cash Flow: Machine B - $83,000 $35,000 $25,000 $18,000 $10,000 $7,000 $5,000 Table 1. Six year cash flow figures for Machine A and Machine B. Task 1) By simple inspection of the cash flow figures, state which machine you would choose and justify your choice. (20 marks) Task 2) If your colleague disagrees with your choice. Discuss a one valid reason why your colleague's choice may be justified? (10 marks) Task 3) According to the above disagreement, as the project manager, think that you have to use another selection method to select the optimum option to invest money and purchase the machine for the project. Therefore use all the other financial project selection models (Net profit / ROI / NPV & IRR) to analyze which investment option introduces more profit to the business. NOTE: each machine option needs to be analyzed through all the financial methods recommended above, separately. • Net profit (5 marks) • ROI (10 marks) • NPV for a discount rate of 7% (15 marks) • IRR (10 marks) Task 4) Conclude the decision of selecting the optimum investment option by critically evaluating the results obtained through the above considered selection methods. Furthermore gather advantageous and disadvantageous of each financial method considered above. • Advantageous and disadvantageous written (10 marks) . Conclusion with critical evaluation (20 marks) Scenario 1 A potential 6-year project requires the purchase of a new piece of machinery. Assume, you are the project manager and you must choose between two potential machines (Machine A and Machine B), either of which would be suitable. The cost of each machine is identical at $83,000. However, they differ in performance such that the projected future cash flows are different for each machine. Projected cash flows over the 6 years of the project are as follows in Table 1: Year 0 1 2 3 4 5 6 Cash Flow: Machine A -$83,000 $5,000 $8,000 $12,000 $20,000 $25.000 $30,000 Cash Flow: Machine B - $83,000 $35,000 $25,000 $18,000 $10,000 $7,000 $5,000 Table 1. Six year cash flow figures for Machine A and Machine B. Task 1) By simple inspection of the cash flow figures, state which machine you would choose and justify your choice. (20 marks) Task 2) If your colleague disagrees with your choice. Discuss a one valid reason why your colleague's choice may be justified? (10 marks) Task 3) According to the above disagreement, as the project manager, think that you have to use another selection method to select the optimum option to invest money and purchase the machine for the project. Therefore use all the other financial project selection models (Net profit / ROI / NPV & IRR) to analyze which investment option introduces more profit to the business. NOTE: each machine option needs to be analyzed through all the financial methods recommended above, separately. • Net profit (5 marks) • ROI (10 marks) • NPV for a discount rate of 7% (15 marks) • IRR (10 marks) Task 4) Conclude the decision of selecting the optimum investment option by critically evaluating the results obtained through the above considered selection methods. Furthermore gather advantageous and disadvantageous of each financial method considered above. • Advantageous and disadvantageous written (10 marks) . Conclusion with critical evaluation (20 marks)
Expert Answer:
Answer rating: 100% (QA)
TASK1 We can select any machine by quickly looking at the cash flow figures Which machine A or B Reason We determine that the total cash inflows for both machines 100000 for each machine are equal TAS... View the full answer
Related Book For
Fundamentals of Financial Management
ISBN: 978-0324597707
12th edition
Authors: Eugene F. Brigham, Joel F. Houston
Posted Date:
Students also viewed these finance questions
-
Assume you are the Project Manager and you are being evaluated based on Return On Investment ROl select the investment opportunities you would accept where the projects are mutually exclusive...
-
The purchase of a new piece of electronic measuring equipment for use in a continuous metal-forming process is being considered. If this equipment were purchased, the capital cost would be $418,000,...
-
A manager at Strateline Manufacturing must choose between two shipping alternatives: two-day freight and five-day freight. Using five-day freight would cost $ 135 less than using two-day freight. The...
-
4. (8 points) Fill in with =, >, >=,
-
Describe three types of standards, and provide examples of each.
-
Explain the difference between the "nature-of-expense" and "function-of-expense" classifications.
-
The stockholders' equity of Lakewood Occupational Therapy, Inc., on December 31, 2009, follows. On April 30, 2010, the market price of Lakewood's common stock was $14 per share and the company...
-
The Jacob Hartz Seed Company, Inc. (Hartz), bought soybeans for use as seed from E. R. Coleman. Coleman certified that the seed had an 80 percent germination rate. Hartz paid for the beans and picked...
-
3) Cass SA, a leading wind energy developer, is planning an acquisition of City BV, a cable company. Cass is offering City's shareholders 0.25 and 0.8 shares of Cass per share of City. Current...
-
Co B is the issuer of a tranche of mandatorily redeemable convertible preference shares (MRCPS) that was issued on the following terms: Required 1. Identify the elements included in the MRCPS. 2....
-
A home builder is looking for the best place to purchase land to build a new home. He researches 10 areas near him to find the number of homes sold there in the past month. He collects the following...
-
The flux in a reactor core shows little variation over a region of energy from 0.4 to \(20 \mathrm{eV}\). Find the average cross-section in this range, if the point cross-sections, given below, show...
-
Tempe Corporation is a calendar-year corporation. At the beginning of 2019, its election to be taxed as an S corporation became effective. Tempe Corp.s balance sheet at the end of 2018 reflected the...
-
Sketch a periodic table (without element symbols). Include the correct number of rows and columns in the s, p, d, and f blocks. Shade in the squares for elements that have irregular electron...
-
Starfleet Corporation has one temporary difference at the end of 2014 that will reverse and cause taxable amounts of $55,000 in 2015, $60,000 in 2016, and $75,000 in 2017. Starfleets pretax financial...
-
At December 31, 2015, Suffolk Corporation had an estimated warranty liability of 105,000 for accounting purposes and 0 for tax purposes. (The warranty costs are not deductible until paid.) The...
-
REQUIREMENTS: You will define a new function to encrypt the user's password for their account, accepting one argument, the password string in plaintext, and returning the encrypted password string....
-
One study found that the elderly who do not have children dissave at about the same rate as the elderly who do have children. What might this finding imply about the reason the elderly do not dissave...
-
Dan Barnes, financial manager of Ski Equipment Inc. (SKI), is excited, but apprehensive. The companys founder recently sold his 51% controlling block of stock to Kent Koren, who is a big fan of EVA...
-
You are considering a 10-year, $1,000 par value bond. Its coupon rate is 9%, and interest is paid semiannually. If you require an effective annual interest rate (not a nominal rate) of 8.16%, how...
-
Companies often have to increase their initial investment costs to obtain real options. Why might this be so, and how could a firm decide if it was worth the cost to obtain a given real option?
-
Why are auditors concerned with related parties during the planning process?
-
The auditor will not ordinarily initiate discussion with the audit committee concerning the a. Extent to which the work of internal auditors will influence the scope of the audit. b. Extent to which...
-
Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement? a. Analysis of balance sheet accounts. b. Analysis of income statement accounts....
Study smarter with the SolutionInn App