CASE STUDY : 7-3
QUAlLITY METAL SERVCE CENTER

Q1. Is the capital investment proposal described in Exhibit 3 an attractive one for
Quality Metal Service Center?

Yes, the purpose of a company is to maximum the profit, and as Elizabeth Barret suggested,it can help company to make more profit. So the capital investment proposal described in Exhibit 3 is an attractive on for QMSC.

Investment in machine $540,000
10 years cash inflow $286,000
PV of cash inflow $39,182

Payback period = 4.5 years
NPV= 286000
IRR= 2.8%
Reasons for selection:

* Positive cash flow * IRR> COC * Payback period is less than the standard

Q 2: Should Ken Richards send that proposal to home office for approval?

Ken need send this proposal to home office for approval, because this proposal is good for the company and can make a lot of profit for the company. And another reason is, capitalexpenditures in excess of $10,000 and all capital leasing decisions require corporate approval.

Q 3: Comment on the general usefulness of ROA as the basis of evaluating district managers performance. Could this performance measure be made more effective?

The Return on Assets (ROA) percentage shows how profitable a company's assets are ingenerating revenue.An indicator of how profitable a company is relative to its total assets.ROA gives an idea as to how efficient management is at using its assets to generate earnings. ROA can be computed as Net Income/ Total Assets.To make it more effective QMSC can use: Multiple performance measure, managementservice histories, or strategy paining.

Q 4: In deciding the investment base for evaluating managers of investment centers, thegeneral question is:What practices will motivate the district mangers to use their assets most efficiently andto acquire the proper amount and kind of new ssets? Presumably, when his redesirethat the actions he takes toward