University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

332

Pages:

2
Author:

stud_ice13

Santana Rey Case Study (SP 24) Santana Rey considers investing in equipment for Business Solutions. The equipment costs $300,000, has a six-year life with no salvage value, and generates $12,939 in annual income and $62,939 in annual cash flow. Key calculations include: 1. Payback Period – Determines how quickly the initial investment can be recovered. 2. Net Present Value (NPV) – Calculates the present value of future cash flows at an 8% required return. 3. Internal Rate of Return (IRR) – Assesses if the return meets Santana's required 8% threshold. Santana must decide based on these factors whether the equipment meets her criteria of a four-year payback and an 8% IRR. Tableau Dashboard Activities These exercises use Tableau for visual analysis: • • • DA 24-1 – Payback period analysis. DA 24-2 – Internal rate of return calculations. DA 24-3 – NPV and profitability index assessments. Company Analysis (Apple and Google) Apple and Google’s capital investments are analyzed through break-even time and NPV. Apple’s $10,495 million investment with a 10-year life and Google’s data are used to: 1. Compute each company’s break-even time. 2. Compare which investment yields faster positive cash flows. Samsung Extended Analysis Samsung’s $21,766 million investment over eight years with expected cash flows of $4,000 million annually is evaluated for break-even time, assessing how quickly the investment yields returns. Capital Budgeting Discussion Key discussion topics include: • • Definition and Risk – Understanding capital budgeting risks. Payback Period Weaknesses – Examining drawbacks of focusing solely on payback time. • Investment Decision Factors – IRR exceeding hurdle rate, present value considerations, and impact of delayed cash inflows on value. Beyond the Numbers Exercises 1. Ethics Challenge (BTN 24-1) – A systems manager considers circumventing approval for a $25,000 computer upgrade by submitting multiple smaller orders. This scenario explores the ethics of sidestepping organizational procedures. 2. Communicating in Practice (BTN 24-2) – A memorandum explaining why NPV is more reliable than payback period for investment decisions. 3. Teamwork in Action (BTN 24-3) – Teams consider qualitative factors, such as customer experience and operational reliability, in an airline’s baggage system investment. Entrepreneurial Decision (BTN 24-4) Jake Loosararian’s company, Gecko Robotics, faces decisions on expanding manufacturing. Tools for evaluating this include: 1. Management Tools – NPV, IRR, payback period, and profitability index. 2. Data Requirements – Projections for cash flows, costs, and required return rates. 3. Tool Assessment – Each tool's strengths and weaknesses, providing a balanced approach to informed decision-making. This chapter emphasizes the importance of capital budgeting metrics, ethical decision-making in budgeting, and qualitative analysis in investment evaluation.