This Case Study is a comprehensive examination of a Capital budgeting problem completed with the projection of the project's future cash flows and multiple evaluation methods including NPV, IRR, paybackperiod, profitability Index, and simple rate of return.This case may also require the ranking of competing projects to simulate a real business environment where projects are plentiful and available capital is limited.<\/p>
For this case study, you will prepare an Excel spreadsheet showing the computations used to prepare the evaluations and final decisions on which projects (if any) should move forward. In addition, a well-formatted memo (1-2 pages) to management is required to support your experience with the case study.<\/p>
As was required in the last case study, please make sure to include cell formulas and cell references in your Excel file. Unless a value is given to you in the case study, you should be using cell references and formulas for all calculations.<\/p>
Please upload both an Excel document and a separate Word document providing your analysis.<\/p>
CASE STUDY 2 Summer 2022 - Block 2 Proposal Analysis As the newly hired analyst for the corporate offices of Illuminated Electronics Corporation (IEC), you must prepare an analysis of a capital budgeting proposal. Proposal 1 - PPD IEC has just developed a new electronic device (called the PPD) and it believes it will have broad market appeal. The company has performed marketing and cost studies that revealed the following information: A) New equipment would have to be acquired to produce the device. The equipment would cost $315,000 and have a six-year useful life. After six years, it would have a salvage value of about $15,000. B) Sales in units over the next six years are projected to be as follows: Year Sales in Units 1 9,000 2 15,000 3 18,000 4-6 22,000 C) Production and sales of the device would require working capital of $60,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released at the end of the project's life. D) The devices would sell for $35 each; variable costs for production, administration, and sales would be $15 per unit. E) Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $135,000 per year. (Depreciation is based on cost less salvage value). F) To gain rapid entry into the market, the company would have to advertise heavily. The advertising costs would be: Year Amount of Yearly Advertising 1-2 $180,000 3 $150,000 4-6 $120,000 G) The company's required rate of return in 14%.<\/p>
<\/p>
<\/p>
Proposal 2 - NED One of your colleagues has provided an analysis of a competing proposal and concluded the following: NPV = $120,000; IRR = 15.5%; Payback Period = 3.5 years, Profitability Index = 1.25 Required: 1) Compute the net cash inflow (incremental contribution margin minus incremental fixed expenses) anticipated from the sale of the PPDs for each year over the next six years. 2) Using the data computed (1) and other data provided in the problem, determine the net present value, internal rate of return, payback period, and profitability index of the proposed investment. 3) Using the analysis performed in (2), prepare \"best\" and \"worst\" case scenarios using the following assumptions: a) Best Case - Projected sales expectations increase by 10%, required rate of return falls to 7%. b) Worst Case - Projected sales decreases by 10%, required rate of return increases to 15%. 4) Write a memo to the CFO of IEC providing your analysis and recommendation regarding the PPDs. Be sure to compare your results to the competing proposal. Include a strong recommendation for or against the acceptance of the new PPDs into IEC's product line.<\/p>
<\/p>
<\/p>", "transcribed_text": "", "related_book": { "title": "Cost Management Measuring Monitoring And Motivating Performance", "isbn": "1118168879, 9781118168875", "edition": "2nd Canadian Edition", "authors": "Leslie G. Eldenburg, Susan Wolcott, Liang Hsuan Chen, Gail Cook", "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/635f99b5717e0_1157.jpg", "uri": "\/textbooks\/cost-management-measuring-monitoring-and-motivating-performance-2nd-canadian-edition-1157", "see_more_uri": "" }, "free_related_book": { "isbn": "1137481536", "uri": "\/textbooks\/managing-cultural-heritage-ecomuseums-community-governance-social-accountability-1st-edition-9781137481535-9781137481559", "name": "Managing Cultural Heritage Ecomuseums Community Governance Social Accountability", "edition": "1st Edition" }, "question_posted": "2024-06-29 01:57:12", "see_more_questions_link": "\/study-help\/questions\/business-corporate-finance-2020-July-01", "step_by_step_answer": "The Answer is in the image, click to view ...", "students_also_viewed": [ { "url": "\/consider-sphere-with-diameter-of-20-mm-and", "description": "Consider a sphere with a diameter of 20 mm and a surface temperature of 60C that is immersed in a fluid at a temperature of 30C and a velocity of 2.5 m\/s. Calculate the drag force and the heat rate...", "stars": 3 }, { "url": "\/study-help\/psychology\/did-the-authors-address-group-similarities-and-differences-1979876", "description": "Did the authors address group similarities and differences?", "stars": 3 }, { "url": "\/during-may-joliet-fabrics-corporation-manufactured-500-units-of-a-special", "description": "During May, Joliet Fabrics Corporation manufactured 500 units of a special multilayer fabric with the trade name Stylex. The following information from the Stylex production department also pertains...", "stars": 3 }, { "url": "\/study-help\/questions\/43-robert-mcnamaras-work-with-the-us-army-air-corps-9857344", "description": "43. Robert McNamaras work with the US Army Air Corps Office of Statistical Control was primarily concerned with: Operational Efficiency Financial Controls Compliance with laws & regulations...", "stars": 3 }, { "url": "\/study-help\/questions\/i-need-some-help-with-the-following-free-cash-flow-3502883", "description": "I need some help with the following Free Cash Flow, Terminal Value and Discounted Cash Flow calculations: Calculate a five-year free cash flow for Steel Co., starting from Year 2. Calculate the...", "stars": 3 }, { "url": "\/study-help\/questions\/prepare-a-life-cycle-assessment-of-returnable-and-nonreturnable-glass-1004354", "description": "Prepare a Life Cycle Assessment of returnable and non-returnable glass bottles used for the production of soda. The bottles have a capacity of 300 mL. A returnable bottle has a mass of 250 g and...", "stars": 3 }, { "url": "\/study-help\/questions\/consider-the-design-of-an-engineered-wetland-amended-with-limestone-1004132", "description": "Consider the design of an engineered wetland amended with limestone to treat acidic drainage from a coal mine. For the purposes of this problem, we will focus on the total dissolved solids (TDS) of...", "stars": 3 }, { "url": "\/study-help\/questions\/hudson-jewelers-current-layout-displays-jewelry-designs-from-the-cad-1003928", "description": "Hudson Jewelers' current layout displays jewelry designs from the CAD system on a screen in the front of the store. However, customers have little privacy when designing jewelry there. What are the...", "stars": 3 }, { "url": "\/study-help\/questions\/you-deposit-a-today-in-a-fund-paying-interest-at-1001825", "description": "You deposit $A today in a fund paying interest at j4 = 6%. You plan to make quarterly withdrawals for 5 years (for a total of 20 withdrawals), with the first deposit made 1 year from now. The first...", "stars": 3 }, { "url": "\/study-help\/questions\/2-titanic-corporation-has-three-investment-centre-as-below-centre-1000558", "description": "2. Titanic Corporation has three investment centre as below: Centre Nike Pine Feira (RM) (RM) (RM) Sales Operating income Average operating assets 4,000,000 6,000,000 3,500,000 4,000,000 6,000,000...", "stars": 3 } ], "next_back_navigation": { "previous": "\/study-help\/questions\/need-help-with-this-determine-the-amount-of-sales-units-4443652", "next": "\/study-help\/questions\/fogerty-company-makes-two-productstitanium-hubs-and-sprockets-data-regarding-4443654" }, "breadcrumbs": [ { "name": "Study help", "link": "https:\/\/www.solutioninn.com\/study-help\/questions-and-answers" }, { "name": "Business", "link": "https:\/\/www.solutioninn.com\/study-help\/questions-and-answers\/business" }, { "name": "Accounting", "link": "https:\/\/www.solutioninn.com\/study-help\/questions\/business-accounting" }, { "name": "This Case Study is a comprehensive examination of a Capital budgeting problem", "link": "https:\/\/www.solutioninn.com\/study-help\/questions\/this-case-study-is-a-comprehensive-examination-of-a-capital-4443653" } ], "skill_details": { "skill_id": "9", "skill_name": "Accounting", "parent_id": "1" } }1" } }