BUS 630 Managerial Accounting / Capital Investment Evaluation / Ranking Investment Alternative

Week 5 Discussion 1

Capital Investment Evaluation

Select one of the capital investment evaluation methods described in Chapter 10 of your text.  Fully explain the capital evaluation method’s strengths and weaknesses.  Take a position and defend the use of your selected method.  Be sure to use at least two scholarly sources to support your position.  Your initial post should be 200-250 words.

Pick one of the below methods:

The Evaluation Method

Net Present Value Method

Internal Rate of Return

The Payback Period Method

Accounting Rate of Return Method

Discussion 2

Ranking Investment Alternatives

(Problem 10-41) Grosvenor Industries has designated $1.2 million for capital investment expenditures during the upcoming year.  Its cost of capital is 14 percent.  Any unused funds will earn the cost of capital rate.  The following investment opportunities along with their required investment and estimated net present values have been identified:

Project Net Investment           NPV    Project Net Investment      NPV

A         $200,000         $22,000           F          $250,000.00    $30,000.00

B         $275,000         $21,000           G         $100,000.00    $7,000.00

C         $150,000         $6,000             H         $200,000.00    $18,000.00

D         $190,000         -$19,000          I           $210,000.00    $4,000.00

E          $500,000         $40,000           J           $250,000.00    $35,000.00

In your response, complete the following:

Rank the projects using the profitability index. 

Considering the limit on funds available, which projects should be accepted?

Using the NPV, which projects should be accepted, considering the limit on funds available?

If the available investment funds are reduced to only $1,000,000:

Does the list of accepted projects change from Part 2?

What is the opportunity cost of the eliminated $200,000?

Required Text

Schneider, Arnold, (2012). Managerial accounting: Decision making for the service and manufacturing sectors. San Diego, CA: Bridgepoint Education.