Assignment: Brief 5: Shamrock Manufacturing Purpose To assess your ability to: discuss the relevant costs that impact the decision to keep or replace equipment determine the decisions that will be made in a given year based on the financial data provided recommend whether a company should keep or replace its equipment Action Items 1. Read the Problem 9-37. Case Background: You work for an outside consultant hired by the company. The partner (i.e., your instructor) has asked you to provide an analysis of this problem and make a recommendation; therefore, you will address the brief to your instructor. 2. Download the 5-step critical-thinking decision-making matrix. 3. Complete the questions concerning Step 1: Identify the problem(s) and uncertainties based on the assigned problem. 4. Complete the P9-37 template worksheet by filling in the shaded outlined cells; no modifications can be made to the worksheet. This information is one source for completing Step 2: Obtaining Information on the matrix. 5. Complete Step 3: Make predictions about the future on the matrix. 6. Complete Step 4: Make decisions by choosing among the alternatives on the matrix. 7. Review the Sample Business Brief and the grading rubric (below) for the assignment. 8. Write a one-page analysis according to the Business Brief Guidelines. Complete sentences must be used (bullets not acceptable). Your analysis must be written using a concise writing style. Your brief should incorporate all of following instructions: a. An opening paragraph briefly introducing the case situation. Note: The first half of the opening paragraph is to provide a synopsis of the company. The second half of the opening paragraph is state the problem (From Step 1 of the matrix). b. Analysis header - The analytical section should be based on your personal assessment of the financial results from the worksheet. Develop your analysis using percentages and/or relevant dollar totals/balances. This section has the highest point value and should address the following: i. What are the relevant costs that impact the decision to keep or replace the equipment? ii. Based on the #1 and #2 worksheets, what decision would be made in years one and two? iii. Based on the #3 worksheet, would the decision be different for years one and two compared to the initial cost of the new equipment? Note: Avoid the inclusion of calculations and/or explaining computations; instead refer to Appendix A. Avoid duplicating information within this section. The information for this section of brief should be derived from Steps 2 and 3 of the matrix. c. i. Based solely on the worksheet information (Appendix A), should the company keep or replace the equipment? (From Step 4 of the matrix) d. 9. Conclusion header - This section should include your opinion based on your analysis of the case information and situation outcome. Your recommendation should address the following question and provide only key relevant information and logical discussion in support of your opinion: APA citation(s) and reference(s). Check your writing style by using the Grammarly app you downloaded. (See instructions under Week 1 Preparation.) Correct your business brief as needed. 10. 11. Submit your business brief to turnitin.com. Read the Originality Report you receive from turnitin.com and make any modifications as needed to your business brief. This may include adding proper citations or better paraphrasing. 12. Attach the appendices to your paper: a. Appendix A containing the P9-37 worksheet. a. Appendix B containing the completed 5-step critical-thinking decision-making matrix. a. Appendix C containing the grading rubric for the assignment. 5-Step Critical Thinking Decision-Making Process Matrix Step 1: Identify the problem(s) and uncertainties. What exactly is the problem... (Study the problem to clarify what you need to know to solve it. Distinguish problems over which you have some control from problems over which you have no control. Pay special attention to controversial issues in which it is essential to consider multiple points of view.) The problem is this ... (Write out the problem clearly and precisely, with details. Write the problem in different ways until you get it perfectly clear in your mind.) This is an important problem because... (Remember in business, a problem is important if it affects the bottom line. So how does this problem affect the bottom line (net income). The key question(s) that needs to be answered to solve this problem is... (Every problem has questions connected to it. Here we want you to write out the most important question(s) you need to answer to solve the problem. State it clearly and precisely. Being specific is very important.) Step 2: Obtain information. The following information is needed to answer this question... (Here you are looking for the facts and/or data that help you solve the problem. Actively seek the information most relevant to the question. Include in that information options for action, both short-term and long-term. Recognize limitations in the terms of resources such as money, time, and people.) Some important assumptions I am using in my thinking are... (Figure out what you are taking for granted. Make sure these assumptions are reasonable. Watch out for self - serving or unjustified assumptions.) The points of view relevant to this problem belong to... (Who are your stakeholders? Determine whether the stakeholder's point of view is relevant.) Note: Remember to view the information you have obtained for potential bias. This is from the perspective of your own bias to the research and the bias of the authors who compiled the data and the research you gathered. In other words, do not discount the importance of other's data because of your own bias(is). Step 3: Make predictions about the future. If this problem gets solved, some important implications are... (Evaluate options, taking into account the advantages and disadvantages of possible decisions before acting. What consequences are likely to follow from this or that decision?) If this problem does not get solved, some important implications are... (Evaluate options, taking into account the advantages and disadvantages of possible decisions before acting. What consequences are likely to follow from this or that decision?) The potential alternative solutions to solve the problem are... (If the problem involves multiple conflicting points of view, you will have to assess which solution is the best.) Note: if the problem is one-dimensional, there may be just one correct solution. Step 4: Make decisions by choosing among alternatives. What is the best solution and why... (After following the process above, I think the best solution to the problem is... Defend your recommendation.) Step 5: Implement the decision, evaluate performance, and learn. In business, the fifth step in the decision making process is implementation. In the MBA program, most times you will end with Step 4 since you will not have the opportunity to implement. You may be asked to develop an implementation plan and recommend how you will evaluate performance in some assignments. SHAMROCK MANUFACTURING Facts: Old machine historical cost Old machine current book value Remaining useful life of asset (2 years) Annual depreciation straight-line depreciation method Market value Salvage value at end of useful life $150,000 New equipment 60,000 Useful life of new equipment (2 years) $90,000 $30,000 Annual depreciation $45,000 straight-line depreciation method $36,000 Annual reduction in direct MFG labor costs $15,000 Annual reduction in electricity $17,500 0 Salvage value at end of useful life 0 YEAR ONE #1 Cash operating costs Direct manufacturing costs Electricity Depreciation Loss on disposal of old machine Total costs New Equipment (replace) Old Equipment (keep) Cost Difference by replacing $0 ($15,000) (17,500) 0 24,000 ($8,500) ($15,000) (17,500) 24,000 ($8,500) Discuss #1 and #2 in the analytical section of your case analysis. YEAR TWO #2 Cash operating costs Direct manufacturing costs Electricity Depreciation Current disposal price of old machine Total relevant cash flow #3 New Equipment (replace) Old Equipment (keep) (35,000) (36,000) ($71,000) "WHAT IF" THE NEW MACHINE ONLY COST -->? WITH THE SAME 2 YEAR USEFUL LIFE 0 $0 Cash Outflow by replacing $0 (35,000) 0 (36,000) ($71,000) Note: The book value of the old machine $60,000 would be written off as depreciation over 2 years under the keep option, or all at once in the current year under replace option so net effect is the same, so it is irrelevant in this analysis $77,000 YEAR ONE New Equipment (replace) Cash operating costs Direct manufacturing costs Electricity Depreciation Loss on disposal of old machine Total costs Old Equipment (keep) (17,500) 24,000 $6,500 $0 Cost Difference by replacing $0 (17,500) 0 24,000 $6,500 Compare #1 and #2 to the "what if" results in #3 in the analytical section of your case analysis. YEAR TWO New Equipment (replace) Cash operating costs Direct manufacturing costs Electricity Depreciation Current disposal price of old machine Total relevant cash flow Old Equipment (keep) $0 (36,000) ($36,000) 0 $0 Cash Outflow by replacing $0 0 0 (36,000) ($36,000) In the conclusion section of your case analysis, in your opinion, what decision should be made