Case 7-3
Quality Metal Service Center
1. Is the capital investment proposal described in Exhibit 3 and attractive one for Quality Metal Service Center?
The project evaluation seems to be beneficial to the company:
A. Payback period: 4.5 years less than the company’s criterion of 10 years
B. Internal rate of return: 21.8%
c. Net present value (at 15% cost of capital): $286,000
The proposal seems to be an attractive one due to the fact that there seems to be a need in the district for this particular district to have the ability to perform some preproduction processing which is beneficial to local customers. The investment seems to be within company parameters and sounds attractive.
2. Should Ken Richards sent that proposal to
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* As a percentage-return measure, ROA is comparable to cost-of-capital and market rate of return measures.
Weaknesses:
* There is no incentive for a division to expand to the point where the marginal return on investment equals the cost of capital.
Since by evaluating on ROA alone could be fine in the short run, but a manager does not have incentive to grow a business by purchasing more assets. Maybe instead of basing the performance evaluation solely on ROA also base the performance on the growth of the district as well and how the district manager contributed to the growth.
4.In deciding the investment base for evaluating managers of investment centers, the general question is: What practices will motivate that district managers to use their assets most efficiently and to acquire the proper amount and kind of new assets? Presumably, when his ROA is being measured, the district manager will try to increase his ROA, and we desire that the actions he takes toward this end be actions that are in the vest interest of the whole corporation. Given this general line of reasoning, evaluate the way Quality computes the “investment base” for its districts. For each asset category, discuss whether the basis of measurement used by the company is the best for the purpose of measuring districts’ ROA. What are the likely motivational problems that could arise in such a system? What can you recommend to overcome
Health and Safety control equipment identified by the principles of protection which should be used relating to the use of first and second fixing
Rate of return on common stockholders’ equity: This ratio determines how much profit the company makes from the money invested by the shareholders. Investors will use this ratio to determine if the company is profitable over
Another problem adopting Roomis is that their ally in US Natex is unreliable as there were often delays and is not very efficient in carrying out the operation. Not being able to supply goods on time affects the goodwill relationship which the company has with its customers which can cause the company its market share. Once the company loses its market share then it will be difficult to regain it back. Also company policy of maintaining low inventory levels to free up capital would require a very efficient supply chain system to maintain the production process flow. So Roomis needs to revamp itself in terms of service levels to meet customer expectation and RMM has to figure out a way to do so.
ROA is considered the best overall indicator of the efficiency of assets used in a company. Home Depot and Lowe’s ROA ratio both moved down due to the downturn in the industry but Home Depot was able to improve 2010.
The required interest rate which would return an NPV of zero is 9.22%. This is less than the cost of capital of 10%.
In this assignment you will demonstrate your understanding of capital investment techniques by evaluating the following three case studies.
Walters Body Shop, Inc. is an auto body shop that is located in Greenwood, Indiana. They are serving the Indianapolis, IN area and the nearby counties including Greenwood. Walters Body Shop, Inc. was established in 1989. Walters Body Shop, Inc. specializes in collision repair and custom paint. Their collision services include minor dent repair, major auto accidents, towing service straight to their shop, boats, campers, and more. Walters Body Shop, Inc. makes the cars look new again.
Auto body repair service price quotes can vary widely from one shop to the next. Depending on the age of your car and the extent of the damage to it, getting an accurate estimate can be tricky.
Preventive Maintenance Checks and Services (PMCS) means systematic caring, inspecting, and servicing of military equipment to keep it in good condition and to prevent breakdowns. The operator of the vehicle mission is to be sure to perform PMCS each time he/she operate the vehicle. Always do the PMCS in the same order, so it gets to be a habit. Once you've had some practice, you will quickly spot anything wrong.
Every one of us have to utilize a repairman now and again (well, every one of us who drive that is), and any individual who has an auto will realize that tragically it can turn out badly now and again. Regardless of the fact that your auto doesn't have any issues however, it's still vital to know a decent workman with the goal that you can get a decent cost for your MOT and your general adjusting to guarantee that your auto is street lawful at all times and to guarantee that you can drive securely.
Welders are a large part of the construction industry. Welders build frames for large buildings and things like bridges. Welders build support frames for many things. They put together car frames and piece together pipes for gas lines and oil field work. Welders could be called pipefitters, boilermakers, and ironworkers.
First of all, return on asset (ROA) is a ratio used to measure how efficient a company generates profit using its assets, which is the invested capital. We noticed that HH’s ROA was increasing from 2006 to 2010. However, HH’s ROA for 2011 dropped dramatically from 18.41%(year
Yes, in the investment center. The managers are responsibility for the segments,investmentand asset base as well as the profits. Usually, evaluate based on the return on assetsemployed, evaluation might include a variety of measures such as profit, return oninvestment, residual income, economical valued added and a range of non-financialmeasures. Hence the manager in the districts should consider about the acquisition of newequipment which is an investment for the segment. And also, they evaluated equipments andaccounts receivable etc. based on the return on assets employed. May be it can also be the profit center because the managers usually evaluated in terms of effectiveness in raisingsegment profit level and controlling costs.QMSC should use EVA instead of ROA as the measure of district and manager performance. Since EVA is the best proxy for shareholder value at the business unit level, improving EVA will also improve the companys overall performance. The managers district objectives will then be congruent with the companys overall objectives. This will induce Mr. Richards to employ additional assets
The next step of the project involved identifying and bifurcating the detail 's and basis of the project cost, compare the cost with similar projects and dеtеrminе thе phasing of еxpеnditurеs. Finally, thе financial analysis of thе company was done to dеtеrminе its viability and profitability. This analysis is basically required in thе dust free paper with sharp printing to analyst thе financial aspects of any capital investment projеct along with its technical feasibility and ratio analysis and also to the journal entries of receipts of the bills made.
Data Envelopment Analysis (DEA) is a non-parametric direct programming based method for assessing the relative proficiency of Decision making units (DMUs) which was presented by Charnes, Cooper, and Rhodes [16], there has been a substantial number of research on DEA models that a bunches of specialists have grown, for example, BCC show (Banker,Charnes,&Cooper,[17],FDH model[21], SBM model[22],EBM display [23], RBM demonstrate [24] and NEBM[25].As showed in [26], Wellsprings of wastefulness and efficiencies, positioning of DMUs, assessment of the adequacy of program or strategies, administrations assessment, making a quantitative reason for reallocating assets, and so on, these can be recognized by the utilization of DEA. DEA has increased significant consideration as administrative instrument for measuring the execution of DMUs and port execution in the course of the most recent decades.