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Ethics and professional conduct in business Erin Haywood was recently hired as a cost analyst by Wind River Medical Supplies Inc. Oneof Erin’s first assignments was to perform a net present value analysis for a new warehouse.Et-in performed the analysis and calculated a present value index of 0.8. The plant manager.ZuhairBarbat, is very intent on purchasing the warehouse because he believes that more storage space is needed. Zuhair asks Erín into his office and the following conversation takes place: ZubairErín, you’re new here, aren’t you? EHii: Yes, sir. Zubair: V.dl, Erin, let me tell you something. ¡m not at all pleased with the capital investment analysis that you performed on this new warehouse. T need that warehouse for my production. If I dont get it, where am I going to place our output? Erín: Hopefully with the customer, sir. Zithair: Now don’t get smart with me. Erín: No, really. I was being serious. My analysis does not support constructing a new ware- house. The numbers don’t lie: the warehouse does not meet our investment return targets. In fact, it seems to me that purchasing a warehouse dots not add much value to the business. We need to be producing product to satisfy customer orders, not to fill a warehouse. Zubair Listen, you need to understand sonwthing. The headquarters people will not allow mv to build the warehouse if the numbers dont add up. You know as well as I that many assump tions go into your net present value analysis. Why don’t you relax some of your assumptions so that the f́nancial savings will offset the cost? Erín: I’m willing to discuss my assumptions with you. Maybe I overlooked something. Zubafr Good. Here’s what I want you to do. 1 see in your analysis tha you don’t project greater sales as a result of the warehouse. It seems to me, if we can store more goxLs, then will have more to sell. Thus, logically, a larger warehouse translates into more sales. If you incorporate this into your analysis, I think you’ll see that the numbers will work out. Why don’t you work it through and come back with a new analysis? I’m really counting on you on this one. Let’s get off to a good start together and see if we can get this project accepted. What is your advice to Erin?

BuyFind

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883
BuyFind

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883

Solutions

Chapter
Section
Chapter 15, Problem 15.1C
Textbook Problem

Ethics and professional conduct in business

Erin Haywood was recently hired as a cost analyst by Wind River Medical Supplies Inc. Oneof Erin’s first assignments was to perform a net present value analysis for a new warehouse.Et-in performed the analysis and calculated a present value index of 0.8. The plant manager.ZuhairBarbat, is very intent on purchasing the warehouse because he believes that more

storage space is needed. Zuhair asks Erín into his office and the following conversation

takes place:

ZubairErín, you’re new here, aren’t you?

EHii: Yes, sir.

Zubair: V.dl, Erin, let me tell you something. ¡m not at all pleased with the capital investment

analysis that you performed on this new warehouse. T need that warehouse for my production.

If I dont get it, where am I going to place our output?

Erín: Hopefully with the customer, sir.

Zithair: Now don’t get smart with me.

Erín: No, really. I was being serious. My analysis does not support constructing a new ware-

house. The numbers don’t lie: the warehouse does not meet our investment return targets.

In fact, it seems to me that purchasing a warehouse dots not add much value to the business.

We need to be producing product to satisfy customer orders, not to fill a warehouse.

Zubair Listen, you need to understand sonwthing. The headquarters people will not allow mv

to build the warehouse if the numbers dont add up. You know as well as I that many assump

tions go into your net present value analysis. Why don’t you relax some of your assumptions so

that the f́nancial savings will offset the cost?

Erín: I’m willing to discuss my assumptions with you. Maybe I overlooked something.

Zubafr Good. Here’s what I want you to do. 1 see in your analysis tha you don’t project

greater sales as a result of the warehouse. It seems to me, if we can store more goxLs, then

will have more to sell. Thus, logically, a larger warehouse translates into more sales. If you

incorporate this into your analysis, I think you’ll see that the numbers will work out. Why

don’t you work it through and come back with a new analysis? I’m really counting on you

on this one. Let’s get off to a good start together and see if we can get this project accepted.

What is your advice to Erin?

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Chapter 15 Solutions

Survey of Accounting (Accounting I)
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