Project #48841 - Acct for Business Decisions

Please provide responses to Part 1 and Part 2 in 2 separate excel tabs.

 

Part 1

 

Waterways puts much emphasis on cash flow when it plans for capital investments. The company chose its discount rate of 8% based on the rate of return it must pay its owners and creditors. Using that rate, Waterways then uses different methods to determine the best decisions for making capital outlays.

 

In 2014 Waterways is considering buying five new backhoes to replace the backhoes it now has. The new backhoes are faster, cost less to run, provide for more accurate trench digging, have comfort features for the operators, and have 1-year maintenance agreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoe operators are very familiar with the old backhoes and would need to learn some new skills to use the new backhoes.

 

The following information is available to use in deciding whether to purchase the new backhoes.

 

 

Old Backhoes

 

New Backhoes

Purchase cost when new

$90,000

 

$200,000

Salvage value now

$42,000

 

 

Investment in major overhaul needed in next year

$55,000

 

 

Salvage value in 8 years

$15,000

 

$90,000

Remaining life

8 years

 

8 years

Net cash flow generated each year

$30,425

 

$43,900

 

Instructions

 

(a)  Evaluate in the following ways whether to purchase the new equipment or overhaul the old equipment. (Hint: For the old machine, the initial investment is the cost of the overhaul. For the new machine, subtract the salvage value of the old machine to determine the initial cost of the investment.)

 

(1)  Using the net present value method for buying new or keeping the old.

 

 

 

Part 2

 

NuComp Company operates in a state where corporate taxes and workers’ compensation insurance rates have recently doubled. NuComp’s president has just assigned you the task of preparing an economic analysis and making a recommendation relative to moving the entire operation to Missouri. The president is slightly in favor of such a move because Missouri is his boyhood home and he also owns a fishing lodge there.

 

                You have just completed building your dream house, moved in, and sodded the lawn. Your children are all doing well in school and sports and, along with your spouse, want no part of a move to Missouri. If the company does move, so will you because the town is a one-industry community and you and your spouse will have to move to have employment. Moving when everyone else does will cause you to take a big loss on the sale of your house. The same hardships will be suffered by your coworkers, and the town will be devastated.

 

                In compiling the costs of moving versus not moving, you have latitude in the assumptions you make, the estimates you compare, and the discount rates and time periods you project. You are in a position to influence the decision singlehandedly.

 

Instructions

 

  1. Who are the stakeholders in this situation?

  2. What are the ethical issues in this situation?

  3. What would you do in this situation?

 

 

 

Subject Business
Due By (Pacific Time) 11/26/2014 12:00 am
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