Rowe Pottery Works, Inc
Rowe Pottery Works, Inc. “CASE STUDY”
1) Evaluate the purchase of a new kiln. Use the correct format.
Capital Budgeting
Year Total Inflows Purchase New Machine Sales COGS Selling Expense Cash Flows Dis.
C.F IRR Inflow 15%
0 750 175 152 152
1 500 225 100 210 189 159
2 600 270 120 245 161 161
3 700 315 140 280 160 160
4 800 360 160 315 157 157
5 900 405 180 350 151 151
6 1,000 450 200 350 131 131
7 1,000 450 200 -750 1101 1071
Discounted payback period = 4 + 118/158= 4.74 years
The new project will take 4.74 years to recover the initial cash
Should the company purchase a new kiln? - ½ page explanation.
Yes, Row Pottery Works, Inc. should purchase the new Kiln because it would help them in the future. Rowe Pottery Works, Inc. has experienced losses for two and a half years. RPW’s operations are the main source of its losses as stated in the case. Continued losses were still present even thou attempts were made to control costs. The company was also in the process of investing in a new Kiln that had hopes of improving the company. Before that decision was made, I had to calculate numbers in order to witness whether or not purchasing the Kiln would be a good idea. The liquidity of inventories is very important in terms of profitability. I would recommend RPW to invest in the new Kiln because in the long run, it would be beneficial to the company. Future strategies for cost controlling and capital budgeting and management is going to be critical for RPW’s operation considering its insufficient debt capacity. Even though the sales of the company remain strong, the fixed costs are too high. Attempts to reduce the fix costs should be the key to increase company
1) Evaluate the purchase of a new kiln. Use the correct format.
Capital Budgeting
Year Total Inflows Purchase New Machine Sales COGS Selling Expense Cash Flows Dis.
C.F IRR Inflow 15%
0 750 175 152 152
1 500 225 100 210 189 159
2 600 270 120 245 161 161
3 700 315 140 280 160 160
4 800 360 160 315 157 157
5 900 405 180 350 151 151
6 1,000 450 200 350 131 131
7 1,000 450 200 -750 1101 1071
Discounted payback period = 4 + 118/158= 4.74 years
The new project will take 4.74 years to recover the initial cash
Should the company purchase a new kiln? - ½ page explanation.
Yes, Row Pottery Works, Inc. should purchase the new Kiln because it would help them in the future. Rowe Pottery Works, Inc. has experienced losses for two and a half years. RPW’s operations are the main source of its losses as stated in the case. Continued losses were still present even thou attempts were made to control costs. The company was also in the process of investing in a new Kiln that had hopes of improving the company. Before that decision was made, I had to calculate numbers in order to witness whether or not purchasing the Kiln would be a good idea. The liquidity of inventories is very important in terms of profitability. I would recommend RPW to invest in the new Kiln because in the long run, it would be beneficial to the company. Future strategies for cost controlling and capital budgeting and management is going to be critical for RPW’s operation considering its insufficient debt capacity. Even though the sales of the company remain strong, the fixed costs are too high. Attempts to reduce the fix costs should be the key to increase company