Part A
1. a. Describe an incremental cash flow for a project.
b. Describe three (3) concepts we need to examine to help understand how to estimate the incremental cash flow of a project.
2. Benson Co. purchases an asset for $6,000. This asset qualifies as a seven-year recovery asset under MACRS. Benson has a tax rate of 30%. The seven-year expense percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, respectively. If the asset is sold at the end of six years for $2,000, what is the cash flow from disposal? Show your work.
Part B
1. Briefly describe JIT inventory management.
2. Describe one (1) type of cost that is minimized with JIT control.
3. In order to use JIT, is it better to have high ordering costs or low? Provide one (1) supporting fact to justify your answer.
Part C
You are CEO of Acme, Inc. located in the United States. You use the discounted payback period method and accept all projects that payback in three years. You are considering a project that will cost $5,500,000 and will produce one cash flow that occurs in three years. However, the cash flow is in pesos since the project is an overseas project. The current indirect exchange rate is 13.5 pesos per dollar. The cash inflow in pesos is 100,000,000 in three years, and the discount rate is 11.5%. During this time, the anticipated annual inflation rate is 5% in the United States and 4% in Mexico.
Should you accept this project, using the discounted payback period method? Is this a good decision? Provide the six (6) steps you would utilize to determine whether or not this is a good decision.
Grading Rubric
Please refer to the rubric below for the grading criteria for this assignment.
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CATEGORYExemplarySatisfactoryUnsatisfactoryUnacceptable
5 points 4 points 3 points 1 point
Student provides a clear,
logical description of
incremental cash flow for a
project.
Student provides a mostly
clear, logical description of
incremental cash flow for a
project.
Student provides a weak or
unclear description of
incremental cash flow for a
project.
Student provides a poor
description of incremental
cash flow for a project.
10 points 8 points 5 points 2 points
Student provides a clear,
logical description of at least
3 concepts we need to
examine to help understand
how to estimate the
incremental cash flow of a
project.
Student provides a mostly
clear, logical description of 2-
3 concepts we need to
examine to help understand
how to estimate the
incremental cash flow of a
project.
Student provides a weak or
unclear description of 1-2
concepts we need to
examine to help
understand how to
estimate the incremental
cash flow of a project.
Student provides a poor
description of 1-2 concepts
we need to examine to
help understand how to
estimate the incremental
cash flow of a project.
10 points 8 points 5 points 2 points
Student provides the correct
cash flow from disposal
calculation, and shows all of
his or her work.
Student provides the correct
cash flow from disposal
calculation, and shows part
of his or her work.
Student provides the
correct cash flow from
disposal calculation, but
fails to show his or her
work.
Student provides the
incorrect cash flow from
disposal calculation, but
shows partially correct
work.
10 points 8 points 5 points 2 points
Student provides a clear,
logical description of JIT
inventory management.
Student provides a mostly
clear, logical description of
JIT inventory management.
Student provides a weak or
unclear description of JIT
inventory management.
Student provides a poor
description of JIT inventory
management.
Part A: Incremental
cash flow
description (5
points)
Part A: Estimating
incremental cash
flow (10 points)
Part A: Cash flow
from disposal (10
points)
Part B: JIT inventory
management (10
points)
10 points 8 points 5 points 2 points
Student provides a clear,
logical description of at least
1 type of cost that is
minimized with JIT control.
Student provides a mostly
clear, logical description of
at least 1 type of cost that is
minimized with JIT control.
Student provides a weak or
unclear description of at
least 1 type of cost that is
minimized with JIT control.
Student provides a poor
description of at least 1
type of cost that is
minimized with JIT control.
10 points 8 points 5 points 2 points
Student provides a clear,
logical description of
whether it is better to have
high ordering costs or low in
order to use JIT, with at least
1 clear, logical supporting
fact.
Student provides a mostly
clear, logical description of
whether it is better to have
high ordering costs or low in
order to use JIT, with at least
1 mostly clear, logical
supporting fact.
Student provides a weak or
unclear description of
whether it is better to have
high ordering costs or low in
order to use JIT, with at
least 1 weak or unclear
supporting fact.
Student provides a poor
description of whether it is
better to have high
ordering costs or low in
order to use JIT, with 0-1
poor supporting facts.
30 points25 points15 points5 points
Student provides a clear,
logical description of
whether or not he or she
should accept the project,
along with at least 6 steps
used to make this decision.
Student provides a mostly
clear, logical description of
whether or not he or she
should accept the project,
along with 4-5 steps used to
make this decision.
Student provides a weak or
unclear description of
whether or not he or she
should accept the project,
along with 2-3 steps used to
make this decision.
Student provides a poor
description of whether or
not he or she should
accept the project, along
with 0-1 steps used to
make this decision.
10 points 8 points 5 points 2 points
Student makes no errors in
grammar or spelling that
distract the reader from the
content.
Student makes 1-2 errors in
grammar or spelling that
distract the reader from the
content.
Student makes 3-4 errors in
grammar or spelling that
distract the reader from the
content.
Student makes more than
4 errors in grammar or
spelling that distract the
reader from the content.
5 points 4 points 3 points 1 point
The paper is written in
proper format. All sources
used for quotes and facts are
credible and cited correctly.
The paper is written in
proper format with only 1-2
errors. All sources used for
quotes and facts are credible
and most are cited correctly.
The paper is written in
proper format with only 3-5
errors. Most sources used
for quotes and facts are
credible and cited correctly.
The paper is not written in
proper format. Many
sources used for quotes
and facts are less than
credible (suspect) and/or
are not cited correctly.
Part B: Ordering
costs (10 points)
Part C: Discounted
payback period
method (30 points)
Format (5 Points)
Mechanics (10
Points)
Part B: Minimized
cost (10 points)
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