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JWI 530 Assignment 2 Management Accounting Application - Financial Management I

JWI 530 Assignment 2 Management Accounting Application - Financial Management I PLDZ-1919
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JWI 530: Financial Management I

Assignment 2: Management Accounting Application

© Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of Strayer University. This course guide is subject to change based on the needs of the class. 1

Due: Sunday, Midnight of Week 10 (22.5% of Final Grade)

In this assignment, you will demonstrate your understanding of capital investment techniques by evaluating the following three case studies. In addition to your calculations, you should submit a Word document that responds to the questions in each scenario.

Case Analysis 1 (Weight 20% of Total Assignment)

You work for a small, local telecommunications company. In five years, the company plans to undertake a major upgrade to its servers and other IT infrastructure. Management estimates that it will need up to $450,000 to cover all related costs; however, as a fairly young company, the goal is to pay for the upgrade with cash and not to take out loans. Right now, you have $300,000 in a bank account established for Capital Investments. This account pays 5% interest, compounded annually. A member of the finance department has approached you with an investment opportunity for the $300,000 that covers a five-year period and has the following projected after-tax cash flows:

Year

Projected Cash Flow 1

1

                          94,000.00

2

                        114,000.00

3

                        134,000.00

4

                        114,000.00

5

                          94,000.00

 

Based on this information, answer the following questions:

1)      How much money will be in the bank account if you leave the $300,000 alone until you need it in five years?

2)      If you undertake the investment opportunity, what is the Nominal Payback Period?

3)      Using the Present Value factors for 6% (which can be found on any PV Factor table), what is the discounted Payback Period of the investment opportunity?

4)      What is the Net Present Value at 6% of the investment opportunity?

5)      Which option (make the investment or leave the money in a savings account) would you recommend to your CEO? Why? What additional factors/information might make you change your point of view?

JWI 530: Financial Management I

Assignment 2: Management Accounting Application

© Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of Strayer University. This course guide is subject to change based on the needs of the class. 2

Case Analysis 2 (Weight 30% of Total Assignment)

The CEO of Dynamic Manufacturing was at a conference and talked to a supplier about a new piece of equipment for its production process that she believes will produce ongoing cost savings. As the Operations Manager, your CEO has asked for your perspective on whether or not to purchase the machinery.

After talking to the supplier and meeting with your Engineers and Financial Analysts, you’ve gathered the following pieces of data:

  • Cost of Machine: $153,000
  • Estimated Annual After Tax Cash Flow Savings: $62,000 (which may or may not grow)
  • Estimated machinery life: 3-5 years (after which there will be zero value for the equipment and no further cost savings)
  • You seem to recall that Dynamic’s Finance organization recommends either a 10% or a 15% discount rate for all Cost Savings Projects

From your JWMI MBA, you know that you need to understand the project financials to ensure that this investment will be economically attractive to Dynamic Manufacturing’s shareholders.

Calculate the Nominal Payback, the Discounted Payback, the Net Present Value and the IRR for each scenario assuming:

  1. tionally and logically develops the topics. It is free of mechanical errors.
JWI 530: Financial Management I Assignment 2: Management Accounting Application © Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distri
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