You have been asked to provide input at the Directors’ meeting regarding the Production Manager’s proposal in relation to the new machinery. In preparation for the meeting, you have decided to undertake a financial and non-financial analysis of the proposal. As part of your preparation:
a. Undertake an analysis using the following financial-based management tools. Your analysis should include relevant calculations as well as a brief explanation of the result of the calculations.
i. Payback period
ii. Accounting rate of return
iii. Net present value (using a discount rate of 10%)
b. With reference to the outcome of the net present value calculated in part a, do you expect that the internal rate of return will be less than, equal to, or greater than the discount rate used of 10%. Briefly explain your answer.
c. With reference to the information provided in the case study, identify and briefly discuss three specific non-financial issues that should be considered before the Directors decide whether to accept the proposal.