Accounting Question

Overview

Part of a manager’s role is to evaluate capital investment
projects to choose the best return on investment. In this assignment,
you will use capital budgeting techniques to make an investment decision
and present your findings in a PowerPoint presentation.

Scenario

For this assignment, you will take on the role of a manager for
Shoals Corporation. Shoals is a company that uses backhoes to complete
its work. You will analyze the information provided here and then create
a presentation to communicate your recommendation to company leaders.

The Shoals Corporation puts significant emphasis on cash flow when
planning capital investments. The company chose its discount rate of 8
percent based on the rate of return it must pay its owners and
creditors. Using that rate, Shoals Corporation then uses different
methods to determine the most appropriate capital outlays.

This year, Shoals Corporation is considering the following capital
investment: buying five new backhoes to replace the backhoes it now
owns. The new backhoes are faster, cost less to run, provide for more
accurate trench digging, have comfort features for the operators, and
have 1-year maintenance agreements to go with them. The old backhoes are
working just fine, but they do require considerable maintenance. The
backhoe operators are very familiar with the old backhoes and would need
to learn some new skills to use the new backhoes.

Use the following information in deciding whether to purchase the new backhoes:

Backhoes

	Old Backhoes		New Backhoes
Purchase cost when new	$90,000		$200,000
Salvage value now	$42,000
Investment in major overhaul needed in next year	$55,000
Salvage value in 8 years	$15,000		$90,000
Remaining life	8 years		8 years
Net cash flow generated each year	$30,425		$43,900

Instructions

Complete a PowerPoint presentation in which you calculate different
measures of return on investment, analyze how the results influence a
proposed investment decision, and make a recommendation based on your
findings. You may download the Week 5 Assignment Template

Download Week 5 Assignment Template or create your own PowerPoint presentation.

(Hint: For the old machine, the initial investment is the cost of the
overhaul. For the new machine, subtract the salvage value of the old
machine to determine the initial cost of the investment.)

Slide 1. Use Excel to calculate the net present
value of the old backhoes and the new backhoes. Save your Excel file and
then insert the Excel file into the PowerPoint presentation. (Use the
video linked in the Resources or follow these commands in Excel:
Insert>Object>Create from File>Browse: Select your saved Excel
file.)

Slide 2. Evaluate the results of the net present
value calculations and how they influence the decision about purchasing
new backhoes or keeping the old backhoes. Double-check that your
calculations on Slide 1 are correct.

Slide 3. Use Excel to calculate the payback period
for keeping the old backhoes and purchasing the new backhoes. (Hint: For
the old machines, evaluate the payback of an overhaul.) Save your Excel
file and then insert the Excel file into the PowerPoint presentation.
(Use the video linked in the Resources or follow these commands in
Excel: Insert>Object>Create from File>Browse: Select your saved
Excel file.)

Slide 4. Evaluate the results of the payback period
calculations and how they influence the decision about whether the
company should purchase new backhoes or continue using the old backhoes.
Double-check that your calculations on Slide 3 are correct.

Slide 5. Using Excel, calculate the profitability
index for keeping the old backhoes and purchasing new backhoes. Save
your Excel file and then insert the Excel file into the PowerPoint
presentation. (Use the video linked in the Resources or follow these
commands in Excel: Insert>Object>Create from File>Browse:
Select your saved Excel file.)

Slide 6. Evaluate the results of your profitability
index calculations and how they influence your decision about whether
the company should purchase new backhoes or continue using the old
backhoes. Double-check that your calculations on Slide 5 are correct.

Slide 7. Explain at least 3 intangible benefits that influence the decision to purchase new backhoes.

Slide 8. Recommend whether the company should
purchase new backhoes or keep the old backhoes. Your recommendation
should be consistent with your calculations and analysis in Slides 1-6
and intangibles in Slide 7.

This course requires the use of Strayer Writing Standards (SWS). The
library is your home for SWS assistance, including citations and
formatting. Refer to the guidelines for PowerPoint/Slideshow SWS. Please refer to the Library site for all support. Check with your professor for any additional instructions.

The specific course learning outcome associated with this assignment is:

• Evaluate capital investment projects to choose the best return on investment.

Resources

Links to an external site. (57 sec) from the LinkedIn Learning course, PowerPoint Quick Tips.

Week 5 Assignment – Project: Evaluate the Capital Investment

Week 5 Assignment – Project: Evaluate the Capital Investment
Criteria	Ratings	Pts
Evaluate the results of the net present value (NPV) calculations and how they influence the decision about purchasing new backhoes or keeping the old backhoes. view longer description	27 to >24.29 pts Exemplary Evaluates the results of the net present value calculations and how they influence the decision about purchasing new backhoes or keeping the old backhoes. 24.29 to >21.59 pts Competent Evaluates the results of the net present value calculations and how they influence the decision about purchasing new backhoes or keeping the old backhoes; NPV calculations are incorrect but evaluation is consistent with the results. 21.59 to >18.89 pts Needs Improvement Describes the results of the net present value calculation but provides little context about their influence on the purchasing decision. NPV calculation is correct. 18.89 to >0 pts Unacceptable Does not describe the influence of net present value calculations. NPV calculations are correct, incorrect, or missing.	/ 27 pts
Evaluate the results of the payback period calculations and how they influence your decision about whether the company should purchase new backhoes or continue using the old backhoes. view longer description	27 to >24.29 pts Exemplary Evaluates the results of the payback period calculations and how they influence your decision about whether the company should purchase new backhoes or continue using the old backhoes. 24.29 to >21.59 pts Competent Evaluates the results of the payback period calculations and how they influence the decision about purchasing new backhoes or keeping the old backhoes; payback period calculations are incorrect but the evaluation is consistent with the results. 21.59 to >18.89 pts Needs Improvement Describes the results of the payback period calculations but provides little context about their influence on the purchasing decision. Payback period calculations are correct. 18.89 to >0 pts Unacceptable Does not describe the influence of payback period calculations. Payback per	/ 27 pts
Evaluate the results of your profitability index calculations and how they influence your decision about whether the company should purchase new backhoes or continue using the old backhoes. view longer description	27 to >24.29 pts Exemplary Evaluates the results of your profitability index calculations and how they influence your decision about whether the company should purchase new backhoes or continue using the old backhoes. 24.29 to >21.59 pts Competent Evaluates the results of the profitability index calculations and how they influence the decision about purchasing new backhoes or keeping the old backhoes; profitability index calculations are incorrect, but the evaluation is consistent with the results. 21.59 to >18.89 pts Needs Improvement Describes the results of the profitability index calculations but provides little context about their influence on the purchasing decision. Profitability index calculations are correct. 18.89 to >0 pts Unacceptable Does not describe the influence of profitability index calculations. Profitability index calculations are correct, incorrect, or missing.	/ 27 pts
Explain at least 3 intangible benefits that influence the decision to purchase new backhoes. view longer description	27 to >24.29 pts Exemplary Explains at least 3 intangible benefits that influence the decision to purchase new backhoes. 24.29 to >21.59 pts Competent Explains 1-2 intangible benefits that influence the decision to purchase new backhoes. 21.59 to >18.89 pts Needs Improvement Lists intangible benefits that influence the decision to purchase new backhoes, but the explanations are insufficient or missing. 18.89 to >0 pts Unacceptable Does not list intangible benefits that influence the decision to purchase new backhoes.	/ 27 pts
Recommend whether the company should purchase new backhoes or keep the old backhoes; recommendation is consistent with your calculations and analysis in Slides 1-6 and intangibles in Slide 7. view longer description	27 to >24.29 pts Exemplary Recommends whether the company should purchase new backhoes or keep the old backhoes; recommendation is consistent with your calculations and analysis in Slides 1-6 and intangibles in Slide 7. 24.29 to >21.59 pts Competent Recommends whether the company should purchase new backhoes or keep the old backhoes; recommendation is consistent with 3 of 4 factors: analysis of your calculations and analysis in Slides 1-6 and intangibles in Slide 7. 21.59 to >18.89 pts Needs Improvement Recommends whether the company should purchase new backhoes or keep the old backhoes; recommendation is inconsistent with or ignores 2 of these factors: your calculations and analysis in Slides 1-6 and intangibles in Slide 7. 18.89 to >0 pts Unacceptable Does not recommend whether the company should purchase new backhoes or keep the old backhoes or recommendation is consistent with fewer than two of these factors: your calculations and analysis in Slides 1-6 and intangibles in Slide 7.	/ 27 pts
Writing contains accurate grammar, mechanics, and spelling in accordance with SWS style. view longer description	15 to >13.49 pts Exemplary Writing contains accurate grammar, mechanics, and spelling in accordance with SWS style. 13.49 to >11.99 pts Competent Writing contains 1–2 errors in grammar, mechanics, spelling, and/or the application of SWS style. 11.99 to >10.49 pts Needs Improvement Writing contains 3–4 errors in grammar, mechanics, spelling, and/or the application of SWS style. 10.49 to >0 pts Unacceptable Writing contains more than four errors in grammar, mechanics, spelling, and/or the application of SWS style.	/ 15 pts
Total Points: 0