Accounting Help

Problem #1 (30 points): Answer three questions below based on the following capital analysis scenario: Sam Stanton is on the capital budgeting committee for his company, Canton Tile. Ed Rhodes is an engineer for the firm. Ed expresses his disappointment to Sam that a project that was given to him to review before submission looks extremely good on paper. "I really hoped that the cost projections wouldn't pan out," he tells his friend. "The technology used in this is pie in the sky kind of stuff. There are a hundred things that could go wrong. But the figures are very convincing. I haven't sent it on yet, though I probably should." "You can keep it if it's really that bad," assures Sam. "Anyway, you can probably get it shot out of the water pretty easily, and not have the guy who submitted it mad at you for not turning it in. Just fix the numbers. If you figure, for instance, that a cost is only 50% likely to be that low, then double it. We do it all the time, informally, Best of all, the rank and file don't get to come to those sessions. Your engineering genius need never know. He'll just think someone else's project was even better than his." Required: 1. Who are the stakeholders in this situation? 2. Is it ethical to adjust the figures to compensate for risk? Explain. 3. Is it ethical to change the proposal before submitting it? Explain. Problem #2 (70 points): In this folder there are files containing project data that you are to use in a capital analysis. There are three proposals (A,B & C) with net annual cash inflows for five years. Below is the table from the project file with the information that you will be calculating. Based on the combination of cash payback, net present value (NPV) and profitability index, you should be able to choose the best proposal to recommend to management. There are two questions to answer at the very bottom of the data file. Cash Payback Proposal Period Present Valus of Net Annual Cash Net Present flows Value Profitability Index Company Standards: Cash payback period 3 year maximum Minimum Average Rate of Return: 12% PV factor 12% PV of Net Cash Flows Proposal A: Year Investment $ 450,000 Net Cash Flow 1 $ 120.000 120.000 110,000 100 000 60,000 510,000 Proposal B: $ 200,000 100,000 80.000 60,000 30,000 20,000 290,000 Proposal C S 320,000 100,000 90,000 90,000 80.000 80,000 440,000 Return Rate: 12% Cash Payback Period Present Value of Net Annual Net Present Cash flows value Profitability Index Proposal 1. Calculate the values for each proprosal. 2. Which proposal would you choose? Why