...` Assignment 2: Capital Budgeting Principles of finance Gyimah Kyei Prof. James M. Triplett 12/17/2014 YEAR 0 1 2 3 4 | CASH FLOW -1,000,000 450,000 350,000 300,000 250,000 | COST OF FORMULAR = N=0NCFn1+in CAPITAL – 8% (1,000,0001+0.08) + (450,0001+0.08) + (350,000(1+0.08)) + (300,000(1+0.08)) + (250,000(1+0.08)) = 138,642.39 >0 INTERNAL RULE OF RETURN FORMUA – 0= n=0NCFn1+IRRn IRR= 14.79% SIMPLE PAYBACK YEAR 0 1 2 3 4 | CASH FLOW-1,000,000 450,000 350,000 300,000 250,000 | CUMULATIVE CASH FLOW-1,000,000 -550,000 -200,000 100,000 | PB= 2+200,000300,000 =2.67 YEARS Net present value is a technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flow. Because the net preset value of 138,642.39 is greater than zero the proposal to replace the company’s central office stores with outside vendors should be accepted. Shareholders should recognize that the projects are going to help...
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... Financial Services/Budgeting/Accounting 101 Main Avenue My City, NY 10002 (908)555-1212 Education and Licensing University of Scranton 1998 Bachelors of Business Administration - Accounting Certified Public Accountant 2002 Career Skills / Knowledge |Lease Financing |Financial Management | |Audit Operations |Capital Budgeting | |Sarbanes Oxley Compliance |Internal Consulting | |Cost Accounting |ERP Implementation | |Spreadsheet Applications |Strategic Planning | Accounting Achievements • Led the initial development of Sarbanes Oxley compliance and auditing program checklist. Worked with cross functional team to make sure the company achieves compliance. Created tracking framework to make sure items identified during the audit were closed out in a timely fashion. • Interacted with line of business presidents and coordinated the annual capital and O&M plan review process. Worked with line of business lead accountants to instill a greater sense of discipline into the budgeting and variance reporting...
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...Stryker Corporation: In-sourcing PCBs Cerutti, Carolina Del Valle Repalde, Angie Samour, Diego Zambrano, Fátima Daniel Ariza Naranjo Evaluación financiera de proyectos UNIVERSIDAD DE LA SABANA ESCUELA INTERNACIONAL DE CIENCIAS ECONÓMICAS Y ADMINISTRATIVAS Chía, Noviembre de 2015 Stryker Case Questions 1. State the business case for option 3, the PCB InSourcing proposal. Option #3 was for Stryker Instruments to manufacture its own PCBs in its own facility near company headquarters in Kalamazoo, Michigan. Once such a facility was up and running, it might be expanded to supply PCBs to other Stryker businesses as well. The requierements to accept this option are the following: - the larget capital outlay of the 3 options - the largest increment in headcount and payroll - it would have to obtain numerous approvals - a new building - a growth in the production volume - new production costs: materials, variable and fixed costs - payment conditions of: 120 days Of all the options this one was the one that promised the highest degree of control over quality and delivery. 2.Use the projections provided in the case to compute incremental cash flows for the PCB project, as well as its NPV, IRR and payback period. The projections in the case shows Instruments’ expected expenditures on PCBs for the year 2004 to the year 2009 under the old sourcing strategy using contract manufacturers. These projections of expenditures include growth...
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...Capital Budget Recommendation Judy Milstead ACC 453/Managerial Accounting & Legal Aspects of Business November 26, 2012 Kyra Squirrel Guillermo Furniture Company is in the furniture business of manufacturing premium quality furniture. The total assets for Guillero Furniture Company from Dec 2010 ($1,350,529) to Dec 2011 ($1,356,411) will help in making the decision in exploring capital budget techniques. Until the 1990’s Guillermo was able stay afloat with just charging a premium rate for his quality furniture until competitors came on the scene. After reviewing his business plan to determine what could be change in the business to be able to compete with his competitors. In making this decision to update his production processes with new equipment or outsourcing the manufacturing to a Norway company or become a broker for this company. To evaluate the options available, many companies utilize various capital budgeting techniques in making the decision before investing in a new project. To base capital projects are evaluated on quantitative as well as qualitative analysis and information. To receive more information, it is best to used more than one technique to applied to a project. In exploring capital budget evaluations techniques to used various intermediate range decisions. In using this techniques will aid in the decision of resulting in the greatest...
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...Capital Budget Recommendation Guillermo Navallez currently runs a premium quality furniture manufacturing business. Up until the 1990’s Guillermo was able to charge a premium for his furniture based off the quality that it reflected, until foreign competitors entered the market. Guillermo is currently reviewing his business plan to determine how he could change his business to compete in this more difficult business climate. Guillermo is deciding between updating his production processes with hi-tech new equipment or outsourcing the manufacturing to a company based in Norway and becoming a broker. Before proceeding, Guillermo will have to differentiate between the various capital budget evaluation techniques. Capital budgeting is a budgeting technique that is used to make various intermediate range decisions. In the Guillermo Furniture example, capital budgeting will help Guillermo to determine whether to purchase or lease the new hi-tech manufacturing equipment or whether Guillermo should increase his sales through changing his business model into a brokerage. There are several capital budgeting techniques that Guillermo can use to determine how best to proceed with his decisions. These concepts include the net present value, internal rate of return, the simple and discounted payback method, the unadjusted rate of return and the annual rate of return method (it is important to note that there are various other capital budgeting techniques). It is important to remember...
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...0195301501_158-192_ch7.qxd 11/3/05 12:47 PM Page 158 CHAPTER 7 INTRODUCTION TO CAPITAL BUDGETING 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 Overview 159 The NPV Rule for Judging Investments and Projects 159 The IRR Rule for Judging Investments 161 NPV or IRR, Which to Use? 162 The “Yes–No” Criterion: When Do IRR and NPV Give the Same Answer? 163 Do NPV and IRR Produce the Same Project Rankings? 164 Capital Budgeting Principle: Ignore Sunk Costs and Consider Only Marginal Cash Flows 168 Capital Budgeting Principle: Don’t Forget the Effects of Taxes—Sally and Dave’s Condo Investment 169 Capital Budgeting and Salvage Values 176 Capital Budgeting Principle: Don’t Forget the Cost of Foregone Opportunities 180 In-House Copying or Outsourcing? A Mini-case Illustrating Foregone Opportunity Costs 181 Accelerated Depreciation 184 Conclusion 185 Exercises 186 158 0195301501_158-192_ch7.qxd 11/3/05 12:47 PM Page 159 CHAPTER 7 Introduction to Capital Budgeting 159 OVERVIEW Capital budgeting is finance terminology for the process of deciding whether or not to undertake an investment project. There are two standard concepts used in capital budgeting: net present value (NPV) and internal rate of return (IRR). Both of these concepts were introduced in Chapter 5; in this chapter we discuss their application to capital budgeting. Here are some of the topics covered: • Should you undertake a specific project? We call this the “yes–no” decision, and we show how both NPV...
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...The University of the West Indies, St. Augustine Faculty of Social Sciences Department of Management Studies M.Sc. Aviation Management AVMT 6001 – Accounting for Business Decisions AVMT 6001 – Group Project 2 Managerial Accounting - JetBlue Airways Corporation Group Members: Cherrish Bridgemohan - 807001633 Rajiv Debie - 04708006 Israel Duncan - 814004144 Kenrick Duncan - 814002425 Neil Shepherd - 814004177 Signatures: Cherrish Bridgemohan ___________________________ Rajiv Debie Israel Duncan Kenrick Duncan Neil Shepherd ___________________________ ___________________________ ___________________________ ___________________________ November 16, 2014 Table of Contents I. II. Table of Abbreviations ........................................................................................................................ 5 Executive Summary............................................................................................................................ 6 III. Introduction......................................................................................................................................... 7 IV. Background – JetBlue Airways ......................................................................................................... 7 V. Management Accounting Information.............................................................................................. 8 Financial Accounting versus Management Accounting ...........................
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...Service Description 1. Corporate Finance & Financial Management: Historical performance; Time value of money: compounding, discounting, present values and future values, annuities and perpetuities, etc.; Interest rates and bond valuation; Dividends and stock valuation and dividend policy; Capital budgeting: NPV, IRR, payback period, profitability index, etc.; Risk, return and security market line: beta estimation, CAPM; Cost of capital, financial leverage, capital structure, etc; Cash and liquidity, credit and inventory management; International corporate finance; Risk management and financial engineering; Options and option valuation; Mergers and acquisitions 2. Accounting for Financial Statements: Preparation of income statement, balance sheet and statement of cash flows: Accounting for specialized items: Property, Plant & Equipment, bad debts; provisions; financial instruments; leases; employee benefits; income taxes; revenues,; foreign currency transactions etc.;Accounting for mergers and consolidations; IFRS vs GAAP; Financial statement analysis 3. Cost and Management Accounting: Cost concepts; Job-order costing vs process costing;ABC Costing; Marginal costing vs absorption costing: CVP analysis; Relevant costs: special order, make or buy decisions; ROA, residual income and economic value added; Standard costing and variance analysis; EOQ and linear programming 4. Quantitative Methods and Business Mathematics: Algebra and logarithm; Series and...
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...strategy of the firm. In particular, we see how certain businesses are made to look inappropriately attractive or unattractive. Cost Behavior, Capacity Analysis and the Downward Demand Spiral Case: Bridgeton Industries: Automotive Component & Fabrication Plant Case Description: Bridgeton Industries was experiencing reduced sales. To become more competitive it introduced a classification procedure for products based upon their productivity and other factors. Products were classified into three groups: world class, potentially world class, and non-world class. The firm outsources the non-world class products. This outsourcing causes the costs on the remaining products to increase because some fixed costs associated with the outsourced products did not go away. These residual costs caused more products to become non-world class and hence candidates for outsourcing. The firm has entered the death spiral. Activity-Based Costing Case: Destin Brass Products Co. Case Description: A specialized manufacturer of brass valves, pumps, and flow controllers is troubled by competitive pricing in pumps and higher than expected margins for flow controllers. Managers’ are increasingly questioning whether they know the true manufacturing costs of its products,...
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...strategy of the firm. In particular, we see how certain businesses are made to look inappropriately attractive or unattractive. Cost Behavior, Capacity Analysis and the Downward Demand Spiral Case: Bridgeton Industries: Automotive Component & Fabrication Plant Case Description: Bridgeton Industries was experiencing reduced sales. To become more competitive it introduced a classification procedure for products based upon their productivity and other factors. Products were classified into three groups: world class, potentially world class, and non-world class. The firm outsources the non-world class products. This outsourcing causes the costs on the remaining products to increase because some fixed costs associated with the outsourced products did not go away. These residual costs caused more products to become non-world class and hence candidates for outsourcing. The firm has entered the death spiral. Activity-Based Costing Case: Destin Brass Products Co. Case Description: A specialized manufacturer of brass valves, pumps, and flow controllers is troubled by competitive pricing in pumps and higher than expected margins for flow controllers. Managers’ are increasingly questioning whether they know the true manufacturing costs of its products,...
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...strategy of the firm. In particular, we see how certain businesses are made to look inappropriately attractive or unattractive. Cost Behavior, Capacity Analysis and the Downward Demand Spiral Case: Bridgeton Industries: Automotive Component & Fabrication Plant Case Description: Bridgeton Industries was experiencing reduced sales. To become more competitive it introduced a classification procedure for products based upon their productivity and other factors. Products were classified into three groups: world class, potentially world class, and non-world class. The firm outsources the non-world class products. This outsourcing causes the costs on the remaining products to increase because some fixed costs associated with the outsourced products did not go away. These residual costs caused more products to become non-world class and hence candidates for outsourcing. The firm has entered the death spiral. Activity-Based Costing Case: Destin Brass Products Co. Case Description: A specialized manufacturer of brass valves, pumps, and flow controllers is troubled by competitive pricing in pumps and higher than expected margins for flow controllers. Managers’ are increasingly questioning whether they know the true manufacturing costs of its products,...
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...Business process notes. Structure options for large organizations * Centralized: Authority and responsibility for mot supply related functions are assigned to a centralized power. Advantages and disadvantages of centralization Advantages would be: * Greater buying specialization * Ability to pay for talent * Consolidation of requirements – clout * Coordination of policies and procedures * Effective planning and research * Common suppliers * Proximity to major organizational decision makers * Critical mass * Firm brand recognition and stature * Reporting line – power * Strategic focus * Cost of purchasing low Disadvantages would be: * Narrow specification and job boredom * Lack of job flexibility * Corporate staff appears excessive * Tendency to minimize legitimate differences in requirements * Lack of recognition of unique needs * Focus on corporate requirements, not on business unit strategic requirements * Distance from users * Tendency to create organizational silos * Customer segments require adaptability to unique situations * Top management not able to spend time on suppliers * Lack of business unit focus * High visibility of purchasing costs Potential advantages and disadvantages of decentralization Advantages would be: * Easier coordination communication with operating department * Speed of response * Effective use of local reserves Disadvantages would...
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...When comparing Managerial Accounting information and Financial Accounting information, which of the following, related to Managerial Accounting information, would be true?(It is concerned with estimates of the results of future activities) 2.In which account are the costs of manufacturing a product (that is ready for sale) accumulated until such time as the product is sold? (Finished Goods Inventory)3. Fardohnya Industries, Inc. reports the following information at 12/31/2012: -Acquired $75,000 cash by issuing common stock -Paid $70,000 cash for materials used in the manufacture of 200 units of product -Paid $16,000 cash for administrative salaries -Paid $35,000 cash for factory wages -Recognized depreciation on factory equipment, $5,000 -Collected $160,000 cash on sales made during 2012 -Recognized depreciation on office furniture, $3,500. Fardohnya makes all sales for cash. There are no credit sales. What is the total product cost?(110,000)* Product costs consist of materials used, labor applied, and overhead. Fardohnya, therefore, has a total product cost of $110,000 ($70,000 + $35,000 + $5,000).4. Fardohnya Industries, Inc. reports the following information at 12/31/2012: -Acquired $75,000 cash by issuing common stock -Paid $70,000 cash for materials used in the manufacture of 200 units of product -Paid $16,000 cash for administrative salaries -Paid $35,000 cash for factory wages -Recognized depreciation on factory equipment, $5,000 -Collected $160,000 cash on sales made during...
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...It forces management to look forward rather looking back, it encourages management to examine what they have done in relation to what they could do and prominently budgeting helps management in control through the constant comparison of actual results with budgeted results, and then taking any necessary corrective action. Dyson J R (Accounting For Non-Accounting Students. Pg. 377). From the above the main purpose (considering the question) is all of directing, giving attention, problem solving and a few more like control and motivation. Budgets aid planning, which gives a business direction. A budget takes the organizational plan (goal and objectives) and quantifies this into something tangible to aim for. Budgets, by defining where the business is going and how it would get there help management and employees alike to focus. Some budgets even go further in reinforcing this focus by listing what will not be done in the period it will cover. Budgets tend to promote forward thinking and the possible identification of short-term problems. Discovering a potential problem early enough allows for both the formulation of multiple solutions and gives managers time for calm and rational consideration of the best way of overcoming these problems. 2) How do Strategic planning, long range planning and budgeting differ Strategic...
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...Executive Summary The following case study report is for Carson Manor, a Winston based non-profit organization that provides nursing care service for senior citizens. The report will identify key issues that may impact Carson Manor’s day-to-day operation on the basis of budgeting, cost control and cost measurement. The key issues will be analyzed against Carson Manor’s objective to outsource a solution provider to conduct a review of their current situation. This report will evaluate three bidders based on total cost of study, potential savings, possible implementation, experience and references. A recommendation is stated at the end of the report, which comprises the possible solutions to the key issues and some actions need to be taken after selecting one of the three bidders. This report would recommend that Clarke-Hamilton Ltd. would be an optimal consultant for Carson Manor given their highest expected savings, suitable implementation of a patient classification system, excessive experience and positive feedbacks from users. Background Description Carson Manor was a not-for-profit institution that provides nursing care services for aged people. It was founded in city of Winston 30 years ago and currently became a medium sized institution with a bed capacity of 470 and a total of 235 employees. Carson Manor administrator is responsible for overseeing day-to-day operations and serving as an information conduit to Mr. Henry Davis, the director of social services. Mr...
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