Question
Purpose Many business decisions require some level of analysis. Differential analysis is one technique for short-term projects. Capital budgeting or capital investment analysis is used
Purpose
Many business decisions require some level of analysis. Differential analysis is one technique for short-term projects. Capital budgeting or capital investment analysis is used for other types of decisions involving long-term, capital intensive projects
Skills
The purpose of this discussion is to help you practice the following skills that are essential to your success in this course, in this field and in professional life beyond school:
- Explain the benefit of differential analysis
- Discuss various capital budgeting methods
Knowledge
This discussion will also help you to become familiar with the following important content knowledge in this discipline:
- Differential analysis, differential revenue, differential cost, differential income
- Relevant revenues and cost, sunk cost
- Capital budgeting methods
- Present value
Tasks
- Lucca Inc. is a popular family owned pizzeria and the owners are considering selling its existing gas pizza oven and replacing it will a new wood-burning pizza oven for its business. The cost of the new over would be $10,000. The new oven is more efficient, has a larger capacity, and it would reduce the time to cook a pizza.
- Lucca Inc. is also considering expanding its operations by purchasing another pizzeria located in nearby area with minimal competition. It would cost $200,000. Expected annual cash flow is $75,000 and the expected annual net income is $55,000.
- Based on the two potential investments above, discuss which analysis method you would use to evaluate the viability of each decision. (Address each investment independently)
- What additional information could be relevant to help with your analysis.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started