Application:
A Letter to the Board of Directors
Decisions involving
capital expenditures often require managers to weight the costs and benefits of
different options related to the same goal or project. For instance, deciding
whether to replace, repair, or do nothing to existing equipment is a capital
expenditure decision that involves calculations, projections, and
deliberations. Managers must be able to quantitatively analyze different
options for capital expenditures to make the best decisions for their
organization.
For this Assignment,
review the information in the scenario presented. You will utilize the
information in this week’s resources and media to make a recommendation in
regard to a capital expenditure.
Garrison Appliances, Inc.
Garrison
Appliances, Inc. is considering expanding its international presence. It sells
25% of all the toaster ovens sold in the United States but only 3% of the
toaster ovens sold outside of the United States. The organization believes that
it can sell more of its product if it has a production facility located
overseas. Estimates concerning two possible locations, Mumbai and Bangalore,
India follow:
|
Possible Location |
Mumbai |
Bangalore |
|
Initial cash outlay |
$5,000,000 |
$2,800,000 |
|
Useful life |
20 years |
20 years |
|
Net cash inflows excluding depreciation |
$1,100,000 |
$860,000 |
|
The cost of capital |
9% |
9% |
|
Tax rate |
40% |
40% |
The
Assignment:
·
Part 1: Prepare a
spreadsheet using Excel or a similar program in which you compute the following
for each proposed location:
o Accounting rate of return on investment
o Payback
o Net present value
o Internal rate of return
Note: Be sure to view the media for this week
before starting this Assignment.
·
Part 2:Utilizing Word or
another word processing software program, prepare a written report for the
Board of Directors. The intended audience is clear from the salutation and the
language used throughout the report.
o nclude a detailed and thorough explanation of
the conclusion you reached regarding the feasibility of each proposal supported
by the calculations prepared in Part 1.
o Explain at leastfive non-financial items
(e.g., culture, language, etc.), which may impact the perceived desirability of
each location.
o Select the one location you recommend the
Board invest in. Explain your rationale in precise and detailed language.
Submit
·
Part 1 of your
Assignment as a “.xls” file with the filename
·
Save Part 2 of your
Assignment as a ”.doc” file
