12 Comparison of Capital Budgeting Techniques The Dilemma at Day-Pro The Day-Pro Chemical Corporation‚ established in 1995‚ has managed to earn a consistently high rate of return on its investments. The secret of its success has been the strategic and timely development‚ manufacturing‚ and marketing of innovative products that have been used in various industries. Currently‚ the management of the company is considering the manufacture of a thermosetting resin as packaging material for electronic
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The Dilemma at Day Pro 1. The payback period can be defined as the length of time it takes before the cumulated stream of forecasted cash flows equal the initial investment (Arnold 2007). By looking at Appendicle A1.0 and A1.1 we can see that the "Epoxy Resin" project has a payback period of 1.5 years while Synthetic Resin has a longer payback period of 2.5 years. On the basis of this methodology we will choose to invest in Epoxy Resin. Though it is important to understand
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1. Calculate the Payback Period of each project. Explain what argument Tim should make to show that the Payback Period is not appropriate in this case. Answer : Year Synthetic Resin Epoxy Resin Cash Flows Cumulative Cash Flows Cash Flows Cumulative Cash Flows 0 -$1‚000‚000 -$1‚000‚000 -$800‚000 -$800‚000 1 $350‚000 -$650‚000 $600‚000 -$200‚000 2 $400‚000 -$250‚000 $400‚000 $200‚000 3 $500‚000 $250‚000 $300‚000 $500‚000 4 $650‚000 $900‚000 $200‚000 $700‚000 5 $700‚000 $1‚600‚000 $200‚000
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1. Payback Period of each project Tim can show that the payback period is not appropriate in the analysis of the projects for the following reasons. First‚ it does not properly account for the time value of money‚ risk financing and other important considerations such as opportunity cost and it does not consider the cost of capital. It does not specify any required comparison to other investments or even to not making an investment. The method is an indication of both the risk and the liquidity
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of his peers but the pressure of his emotional attachment to the case to see that the boy be punished. This finally leads to Juror #3’s inevitable surrender of not guilty. Juror #3 came into this trial with a moral dilemma long before hearing the facts of the case. Given his past experiences‚ he would feel more inclined to vote guilty as to punish and make an example of this boy so that other kids would think twice. In this case if the jury decided on a guilty verdict‚ the defendant would be put
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1.) Synthetic Resin PP=2+250‚000500‚000 =2.5 yrs. Epoxy Resin PP=1+200‚000400‚000 =1.5 yrs. ***Tim must explain to the board that Payback Method does not consider the cost of the capital (debt/equity) that the project will undertake which is reflected in the cash flow. It only states the length of time the company will be tied up in the project. He should also emphasize that the PBP method ignores the time value of money as well as the cash flows occuring after the payback period
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CASE 12 HOME DEPOT Analysis What do the financial ratios in case Exhibit 7 tell you about the operating performance of Home Depot? What additional information do the different ratios provide? Complete and compare a similar analysis for Lowe’s. a. Growth ratios are going down‚ loosing sales. Profitability ratios are declining after 1999 so that is not a good sign. Turnover rates seem to stay constant which means that they are selling the products at a constant rate. b. If their
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Hoang Thi Thanh Ha - 13200154 Case 12-2 To Recognize or Not to Recognize‚ That Is the Question Shakespeare Inc.‚ a private publishing company issued its F/S on March 20‚ 2012. There were several accruals and events that the management of Shakespeare is considering to determine if they should be recognized or disclosed in Dec 31‚ 2011 F/S. In my opinion‚ the important things to focus on subsequent events are the period they effect and if their influence is material or not‚ so that in conclusion
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Case 12.4 1. Mark can ask George for his plans on continuing the company for over a year. The plans must be shared in the form of a financial statement and assuming the plans are adequate‚ Mark can provide feedback through notes on the mitigating factors. If the disclosed information does not meet the criteria Mark was looking for‚ then he should ask George to provide the notes for the shared financial statements which identify the doubts that he has about the growing concern assumption. Assuming
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Organizational Behaviour Case Study PART A BACKGROUND INFORMATION COMPANY STRUCTURE HISTORY The XYZ Company began its operations in 1988. Soon after its formation it entered the field of Information Technology and Telecommunications by developing and distributing IT and telecom equipments. It became the market leader in 2000 representing the most important companies in these sectors such as Microsoft‚ Hewlett Packard‚ Compaq‚ IBM‚ Lucent Technologies (AT&T)‚ Oracle‚ Wipro and Novell.
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