Question
Capital Budgeting Project Due beginning of class August 1st (if choosing an in person meeting, this must be arranged to be completed before that deadline)
Capital Budgeting Project Due beginning of class August 1st (if choosing an in person meeting, this must be arranged to be completed before that deadline) The Managerial Accounting Department at your company has been engaged by the Production Department for assistance in evaluating a purchase decision. The equipment the production department is currently utilizing is outdated and has become costly to maintain. New machines would also provide increased efficiencies leading to increased sales. Due to this, the department is considering replacing all equipment with new machines. Given the financial information listed below, provide the following: - An excel worksheet showing the annual cash flows by line-item and in total for the keep vs. purchase decision, for 8 years. - Calculate the NPV in excel - Calculate the IRR in excel - Should the Department purchase new equipment or maintain the current equipment? - Prepare a report** to management summarizing the following: o Overview of the issue being considered (who has engaged you, why?) o Overview of the main cost/decision drivers (what is most important to this decision) o NPV/IRR Provide and describe these numbers (including what they mean) and based on those include and support your recommendation to the Production Department. Data: - Cost of Current Machines: $700,000 - Cost of New Machines: $1,000,000 - Annual Maintenance on Current Machines: $75,000 - Annual Maintenance on New Machines: $12,000 - Salvage Value of Current Machines: $250,000 - Immediate employee training cost on new machines: $5,000 - Increased sales opportunity provided by new machines: $200,000 first year and growing at 5% per year after - Companys Required Rate of Return: 12% - Contribution margin: 45% - Depreciation and income taxes should be ignored. ** Report ** - There are 3 options for the report: o A typed report with the sections detailed above. This report should be written in a professional manner as though it is being submitted to management. Make sure someone not familiar with the project would understand the report and also use proper grammar and spelling. o A video recording, a good option to use is Screencast-O-Matic (let me know if need assistance setting this up if this is the option you choose). You can email me a copy or link to your video. The video should detail all the information required in the report and should be presented in a professional manner as though in a meeting. o In person meeting: Set up time to meet with me, about 15 minutes. You will present the information to me as though I am management in a meeting. Be prepared for a few questions.
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