Business & Finance homework help

Business & Finance homework help. WI 530: Financial Management I
Assignment 2
© 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.
530 – Assignment 2 (1198) Page 1 of 6
Assignment 2: Cost-Benefit Analysis
Parts A and B Due Sunday, Midnight of Week 10 (25% of Final Grade)
Overview
In this assignment, you will take on the role of a senior member of the finance team assigned to lead the
investment committee of a medium-sized telecommunications equipment manufacturer. Your team is
evaluating a “make-versus-buy” decision that has the potential to improve the company’s competitiveness,
but which requires a significant capital investment in new equipment. The assignment is organized into two
parts:
Part A: Data calculations based on the information in the scenarios
Part B: Recommendations based on the calculations
Opportunity Details
The new equipment would allow your company to manufacture a critical component in-house instead of
buying it from a supplier. This capability would help you stabilize your supply chain (which has suffered from
some irregularities and quality issues in the past). It could also have a positive impact on profitability through
the absorption of fixed costs since this new machine will have plenty of excess capacity. There may even be
a possibility that the company could leverage this capability to create a new external revenue stream by
providing services to other companies.
The company has been growing steadily over the past 5 years, and the financials and future prospects look
good. Your CEO has asked you to run the numbers. After doing some digging into the business, you have
gathered information on the following:
 The estimated purchase price for the equipment required to move the operation in-house would be
$500,000. Additional net working capital to support production (in the form of cash used in Inventory,
AR net of AP) would be needed in the amount of $25,000 per year starting in year 0 and through all 5
years of the project to support production.
 The current spending on this component (i.e. annual spend pool) is $875,000. The estimated cash
flow savings of bringing the process in-house is 20% or annual savings of $175,000. This includes
the additional labor and overhead costs required.
 Your company has access to a credit line and could borrow the funds at a rate of 6%.
 Finally, the equipment required is anticipated to have a somewhat short useful life, as a new wave of
technology is on the horizon. Therefore, it is anticipated that the equipment will be sold after five
years for $25,000. (i.e. the terminal value).
JWI 530: Financial Management I
Assignment 2
© 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.
530 – Assignment 2 (1198) Page 2 of 6
Input from Stakeholders
As part of your research, you have sought input from a number of stakeholders. Each has raised important
points to consider in your analysis and recommendation. Some of the points and assumptions are purely
financial. Others touch on additional concerns and opportunities.
1. Ann, your colleague from Accounting, recommends using the base assumptions above: 5-year
project life, flat annual savings, and 9% discount rate. Ann does not feel the equipment will have any
terminal value due to advancements in technology.
2. Steve from Sales is convinced that this capability would create a new revenue stream that could
significantly offset operating expenses. He recommends savings that grow each year: 5-year project
life, 10% discount rate, and an 8% compounded annual savings growth in years 2 through 5. In other
words, instead of assuming savings stay flat, assume that they will grow by 8% in year 2, and then
grow another 8% over year 2 in year 3, and so on.
3. Ellen from Engineering believes we use a higher Discount Rate because of the risk of this type of
project. As such, she is recommending a 5-year project life and flat annual savings. Ellen suggests
that even though the equipment is brand new, the updated production process could have a negative
impact on other parts of the overall manufacturing costs. She argues that, while it is difficult to
quantify the potential negative impacts, to account for the risk, a 14% discount rate should be used.
4. Peter, the Product Manager, is convinced the new capability will allow better control of quality and
on-time delivery, and that it will last longer than 5 years. He recommends using a 7 Year Equipment
Life (which means a 7-year project and savings life), flat annual savings, and 10% discount rate. In
other words, assume that the machine will last 2 more years and deliver 2 more years of savings.
Peter also feels the equipment will have an estimated terminal value of $15,000 at the end of its 7-
year useful life.
5. Owen, the head of Operations, is concerned that instead of stabilizing the supply chain, it will just add
another process to be managed, and will distract from the core competencies the company currently
has. He feels the company should focus on improving communication and supply chain management
with its current vendor, and he feels confident he can negotiate a discount of 4% off of the annual
outsourcing cost of $875,000 if he lets it be known they are considering taking over this step of the
process. As there is little risk associated with Owen’s proposal due to no upfront capital requirements,
a lower risk-free discount rate of 7% would be appropriate. Owen feels that any price reductions from
the current vendor will last for five years. (NOTE: because there is no “investment”, the Payback and
IRR metrics are not meaningful…simply provide the NPV of the Savings cash flows).
JWI 530: Financial Management I
Assignment 2
© 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.
530 – Assignment 2 (1198) Page 3 of 6
PART A: Data Calculations
Using the data presented above (and ignoring the extraneous information), for this profit and supply chain
improvement project, calculate each of the following (where applicable):
 Nominal Payback
 Discounted Payback
 Net Present Value
 Internal Rate of Return
Scenario Nominal Payback Discounted Payback Net Present Value Internal Rate of
Return
#1: Ann
#2: Steve
#3: Ellen
#4: Peter
#5: Owen
N/A
N/A
N/A
Submission Requirements
Present your calculations and results either in an Excel Spreadsheet or in Word (using tables and headers to
organize the information in a way that is clear and easy to read). Be sure to show your detailed calculations.
If you get something wrong, you may still be able to get partial credit.
JWI 530: Financial Management I
Assignment 2
© 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.
530 – Assignment 2 (1198) Page 4 of 6
Part B: Recommendations
After completing the calculations for all scenarios, create a brief memo to the CEO outlining your committee’s
recommendations. You may organize the memo as you see fit, but it must include the following:
 A clear opening statement of your recommendation for or against the project.
 A brief synopsis of the processes and factors that led to your recommendations.
o What information did you gather, and how did you get it?
o From whom did you seek input, and why?
 A summary of the strategic benefits and risks in pursuing (or not pursuing) this project, including:
o Highlights of the main data points that support your position
o Acknowledgement of the data points that oppose your argument
o Identification of open/unresolved items
 An identification of the scenario that, from a purely financial perspective, represents the most
accurate estimate of the anticipated results and your rationale as to why.
 An identification of non-financial elements that need to be considered for the recommended scenario.
 Any assumptions in project economics can have a significant impact on the result. Identify 3 financial
elements/assumptions in your analysis that would make this project financially unattractive. Be as
transparent and candid with your BOD as possible. What would have to be true for this to be a bad
investment?
 A summary restating your recommendation and key action items.
Submission Requirements
 Your memo should be no more than 2 pages, single-spaced, using 10- or 12-point font.
 Focus on the rationale for your recommendations. Include key numbers to support your
recommendations, but do no re-present all your calculations.
JWI 530: Financial Management I
Assignment 2
© 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.
530 – Assignment 2 (1198) Page 5 of 6
RUBRIC
25% of Course
Grade Assignment 2, Parts A and B
Criteria Unsatisfactory Low Pass Pass High Pass Honors
1.Correct answers
for the
investment
recommendation
scenarios.
Weight: 30%
Did not
demonstrate
understanding,
either by not
submitting, or by
calculating 8 or
fewer answers
correctly.
Partially
demonstrated
understanding by
calculating 9 to
10 answers
correctly.
Satisfactorily
demonstrated
understanding by
calculating 11 to
12 answers
correctly.
Demonstrated a
high level of
understanding by
calculating 13 to
14 answers
correctly.
Demonstrated
exemplary
understanding by
calculating 15 or
more answers
correctly.
2. Showed work
for calculations
for the
investment
recommendation
scenarios.
Weight: 20%
Does not show
work and/or has
significant errors
and shortcomings
of process, order
and calculation of
metrics.
Incorrectly
demonstrates
process, order and
calculation and has
many errors.
Demonstrates
basic level of
understanding of
process, order and
calculation, but
may have some
errors.
Shows process,
order and
calculation that
mostly supports
generation of the
required metrics.
Fully and
Completely shows
process, order
and calculation of
the required
metrics
3.Analyzed the
investment
opportunity
leveraging the
supplied data
sets, and
provided clear,
well-reasoned
recommendation
s to the CEO.
Weight: 40%
Did not submit, or
incompletely
analyzed the
investment
options and did
not address the
key questions or
explain
recommendations.
Provided minimal,
basic analysis
and
recommendations
addressing 3 or
fewer of the
required memo
components and
options.
Provided good
analysis and
recommendations
addressing at
least 4 of the
required memo
components and
options.
Provided
excellent analysis
and
recommendations
addressing all
required memo
components and
all 5 options.
Provided
exemplary
analysis and
recommendations
addressing all
required memo
components and
all 5 options;
included additional
insights drawing
on learning from
outside sources
and demonstrating
excellent business
sense.
JWI 530: Financial Management I
Assignment 2
© 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.
530 – Assignment 2 (1198) Page 6 of 6
4.Professionally
communicated
with clear
writing; concise
and free of
mechanical
errors.
Weight: 10%
Written
communication
does not flow,
and/or fails to
justify or
express
recommendations;
multiple
mechanical errors;
much of the
communication is
difficult to
understand.
Written
communication is
basic; fails to
clearly connect
conclusions and
assertions to
data; has several
mechanical errors
making parts of
the text difficult to
understand.
Written
communication
flows well, but
lacks conciseness
or clarity in places;
assertions and
conclusions are
generally justified
and explained;
contains several
minor grammatical
errors.
Written
communication
flows well;
concisely and
clearly expresses
recommendations
in a manner that
rationally and
logically develops
the topics; there
are a few
mechanical
errors.
Written
communication is
excellent;
concisely and
clearly expresses
recommendations
in an exemplary
manner that
rationally and
logically develops
the topics; free of
mechanical erro

Business & Finance homework help