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Ashford 6: - Week 5 - Discussion 2





Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your responses. Reference the Discussion Forum Grading Rubric for guidance on how your discussion will be evaluated.


 
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:

ProjectNet InvestmentNPVProjectNet InvestmentNPV
A$200,000$22,000F$250,000.00$30,000.00
B$275,000$21,000G$100,000.00$7,000.00
C$150,000$6,000H$200,000.00$18,000.00
D$190,000-$19,000I$210,000.00$4,000.00
E$500,000$40,000J$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?

Guided Response:

Review several of your classmates’ postings.   Respond to at least two of your classmates by commenting on common responses in the ranking of the projects and by posing a question to challenge their rankings.


Respond  

This section lists options that can be used to view responses. here are two students posts to respond to..

 

Ranking Investment AlternativeKaren Bellow Email this Author 3/16/2016 7:56:50 PM
 

Project

Present Value of net cash

Net Investment

NPV

Profitability

Ranking

A

$220,000

$200,000

$22,000

1.10

3

B

$296,000

$275,000

$21,000

1.076

6

C

$156,000

$150,000

$6,000

1.04

8

D

$171,000

$190,000

($19,000)

0.90

10

E

$540,000

$500,000

$40,000

1.080

5

F

$280,000

$250,000

$30,000

1.12

2

G

$107,000

$100,000

$7,000

1.07

7

H

$218,000

$200,000

$18,000

1.09

4

I

$214,000

$210,000

$4,000

1.02

9

J

$285,000

$250,000

$35,000

1.14

1

 

Rank the projects using the profitability index.  Considering the limit on funds available, which projects should be accepted? The projects that should be selected are the ones with the highest profitability however due to the limit of funds the following are the projects that should be accepted.  (3)A, (5) E, (2) F, (1)J. because they amount to the funds available.

Using the NPV, which projects should be accepted, considering the limit on funds available?  By using the NPV to determine which projects should be accepted is based on if the present value of incremental net cash inflows is greater than the incremental investment net cash outflow then those are the projects that should be accepted.  NVP projects with a positive or zero can be accepted so with that being said project D would be eliminated. Being that there are a limit of funds,  (3)A, (5) E, (2) F, (1)J should be accepted. 

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

Does the list of accepted projects change from Part 2?  Yes the list of accepted projects will change because there was a reduction in funds of $200,000. So the projects that will be accepted now that will be (1)J, (2)F and (5)E. The Net Investment of these projects total $1,000,000.

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

An opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action so project A is the opportunity cost.



 

WK 5 DQ 2Chinere Mock Email this Author 3/16/2016 10:01:26 PM
 

 

Project

Net Investment

NPV

Profitability index

Project

Net Investment

NPV

Profitability index

A

$200,000

$22,000

1.11

F

$250,000.00

$30,000.00

1.12

B

$275,000

$21,000

1.08

G

$100,000.00

$7,000.00

1.07

C

$150,000

$6,000

1.04

H

$200,000.00

$18,000.00

1.09

D

$190,000

-$19,000

0.9

I

$210,000.00

$4,000.00

1.02

E

$500,000

$40,000

1.08

J

$250,000.00

$35,000.00

1.14

 

 

 

 

 

 

 

 The limit on capital expenditure equals to $1,200,000.  The projects that should be accepted include (J, F, A, H and B).  Total capital investment = $250K + 250k + 200k + 200k + 275k = $1,175,000.

 

Schneider (2012) states: “If net present value is zero or positive, the project is acceptable. When the sum is negative, the project's ROR is less than the discount rate”.  Using NPV the projects that should be considered regarding limited funds are E, J, F, A.

 

If the available funds are reduced to on 1 million, then the list of accepted projects would change because the allotted funds invested is cut.  Therefore project A is the opportunity cost would need to be cut because the NVP is lowest on that project and cutting project A will bring the invested amount down to the allowed 1 million.

 

Reference

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

 

Ashford 6: - Week 5 - Assignment


Middlehurst House


Complete: Case 9A (Middlehurst House).

In this case, management is presented with several decision options.  For this assignment, you are required to provide a two to three single-spaced written memo evaluating options and providing recommendations.  The written memo should be properly formatted according to APA guidelines and demonstrate research and critical thinking skills. Evaluations and recommendations should be supported by at least four scholarly sources from the Ashford University Library or other external sources, excluding the textbook. 

In Question 1, evaluate each decision separately in full detail including calculations, as necessary.  The evaluation should be included as part of the memo discussion, not a separate component.  Evaluations can be included as appendices, exhibits or figures; however must be properly referenced within the written content.

In Question 2, prepare a comprehensive business memo addressing each decision and your recommendation.  The memo should be properly formatted as a business memo and formatted according to APA guidelines.

An example of a properly formatted business memo can be found at this link http://owl.english.purdue.edu/owl/resource/590/04/.

Week 5 Written Assignment should:

  • Demonstrate graduate level work including appropriate research and critical thinking skills.
  • Be presented as a business memo (not a question/answer format).
  • Incorporate case questions into the overall analysis.
  • Follow APA formatting guidelines including title page, reference page and in-text citations.
  • Consists of two to three single-spaced pages of content.
Provide at least four scholarly sources, excluding the textbook.

Carefully review the Grading Rubric for the criteria that will be used to evaluate your assignment.

 

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