Finance Assignment 1

3198 Words Aug 5th, 2015 13 Pages
JWI 530: Financial Management I

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Assignment 2: Management Accounting Application

Due Week 10, Day 7 (Weight: 22.5%)

In this assignment you will demonstrate your understanding of capital investment techniques by evaluating the following three case studies.
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Case Analysis 1 – Weight 20% of total assignment

You work for a small, local telecommunications company. In five years, the company plans to undertake a major upgrade to its servers and other IT infrastructure.
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If you invest in the project after five years you will get $ 463,188.77 which is $ 13,188.77 more. Case Analysis 2 - Weight 30% of total assignment

The CEO of Dynamic Manufacturing was at a conference and talked to a supplier about a new piece of equipment for its production process that she believes will produce ongoing cost savings. As the Operations Manager, your CEO has asked for your perspective on whether or not to purchase the machinery.

After talking to the supplier and meeting with your Engineers and Financial Analysts, you’ve gathered the following pieces of data:

Cost of Machine: $150,000
Estimated Annual After Tax Savings: $65,000

Estimated machinery life: 3 years (after which there will be zero value for the equipment and no further cost savings)

You seem to recall that Dynamic’s Finance organization recommends either a 10% or a 15% discount rate for all Cost Savings Projects. You are fairly sure it is 10%.

From your JWMI MBA, you understand that you need to understand the project financials to ensure that this investment will be economically attractive to Dynamic Manufacturing’s shareholders.

Calculate the Nominal Payback, the Discounted Payback, the Net Present Value and the IRR assuming:

Part A, BASE CASE: 3 year project life, flat annual savings, 10% discount rate
Nominal PBP
Year Savings accumulated savings
1 65,000 65,000
2. 65,000 130,000
3. 65,000 195,000

To get the exact PBP we assume the $

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